On 14th December, a hitherto unknown website, called scamsbreaking .com, stirred up a social media storm with stunning allegations about the Kolkata-headquartered SREI group that has a large footprint in infrastructure and finance. The allegation that made people sit up was that Axis Bank (mainly) had lent a stunning Rs44,000 crore to the group without adequate due diligence.
The report made waves because the SREI group is already under scrutiny with the Reserve Bank of India (RBI) having ordered a special forensic audit of SREI Infrastructure Finance and its subsidiary SREI Equipment Finance on 22nd November.
Both, Axis Bank and the SREI group, have issued strong denials and threatened legal action against the website. The share prices of both entities indicate that the market has largely ignored the poorly drafted ‘global exposé’. But, as the market touches new highs everyday and stock indices soar way beyond what is justified by fundamentals, one wonders whether such social media storms can create havoc someday. One doesn’t want to sound alarmist, but fake rumours play a big part in volatile markets and have done so for decades allowing a set of players to profit by pumping prices up or down. In the 1990s bull run, there were multiple occasions when false rumours about the resignation or ill-health of then finance minister Manmohan Singh were used to trigger heavy selling.
In the past month, there have been two weekends when message groups were abuzz with rumours about the health of a top industrialist whose stock has a big weightage in the popular stock indices. Since this group is very market savvy, releasing photos and videos to show that all is well quickly staunched the rumours.
Regulators need to be alert to such manipulation and initiate quick corrective action. Unfortunately, we seem to have moved from one extreme to another in this regard. Finance minister, P Chidambaram, was obsessively focused on stock indices and the actions of foreign institutional investors (FIIs). At every big blip in prices, he would rush to assuage investors and even pressured regulators to speak out. When the NIFTY collapsed after a fat finger trade in 2012, Mr Chidambaram even gave short-shrift to market rules and asked the National Stock Exchange (NSE) to restart trading without bothering to inform the Securities and Exchange Board of India (SEBI).
But the pendulum has probably swung to the other extreme today with the finance ministry and SEBI maintaining a Sphinx-like silence over mutual fund (MF) debacles and after 19 brokers have been expelled in just over a year and three or four others have closed shop, inflicting huge losses on investors.
SEBI’s reaction to the allegations of Scamsbreaking.com was predictable silence. The Reserve Bank of India (RBI) governor is more receptive and understood the possible impact on bank depositors. This ensured a quick clarification to quell possible panic and, probably, stopped market operators from making a killing by hammering these stocks.
Does this mean there is nothing to worry? What was this big exposé all about? And who is ScamsBreaking.com? It is apparently an entity controlled by Australian news agency International Media Corporation. By its own claim published on its website, it is “one of the most reliable, fearless, exclusive & investigative news portals which carries the most exclusive & sensational stories for the purpose to eradicate the spread of false information and scams around the globe, By researching and telling the stories which no one dares to explore.” Clearly, the English language is not its strong point, although that is the language of the portal. The same is true of its sensational exposé on the SREI group, which is high on hyperbole, low on facts and tediously repetitive.
Scamsbreaking.com claims that it plans to expose 20 other companies involved in diverting funds as part of a series. This one is about the Kanoria group of Kolkata which has three main companies—SREI Infrastructure Finance Limited (SREI), SREI Equipment Finance Limited (SEFL) and India Power Corporation Limited (IPCL).
ScamsBreaking alleges that Rs16,000 crore has been ‘siphoned off’ through related-party transactions to companies that are controlled by the SREI group. It alleges that a public trust, called The Power Trust, controlled by SREI group retainers, has been used for routing transactions and diverting CSR (corporate social responsibility) funds. It claims that hundreds and thousands of crores of rupees were diverted to a list of entities connected to the group and has listed specific amounts.
The names of SREI group companies that participated in diversion of funds, it says, are: Bhaskar Silicon Pvt Ltd and its subsidiary Environ Energy Corporation Ltd, (allegedly loss-making shell companies), Bharat Road Network Limited, allegedly controlled by SREI employees; Sahaj E Village Limited and its subsidiary Rural Innovation Labs Pvt Limited, Swaymbhu Natural Resources Private Limited, Vara Technology Pvt Ltd, Bharat Nirman Fund promoted by Kanoria brothers, Victor Buildwel Private Limited, SREI Alternative Trust, Attivo Economic Zones Private Limited, I log Ports Private Limited, Predicate Consultants Private Limited. While Scamsbreaking claims to have done a ‘forensic investigation’, it provides no direct proof or trail of money.
Then comes the big charge that Axis Bank “provided loans to SREI Infrastructure and Finance Limited to the tune of Rs44,000 crore without any due diligence and verification of end use,” which may be the most confused of its allegations. An investment banker, on reading the exposé says, it “seems to be written by someone with little or no knowledge of security creation, modification and current outstanding charges... he has aggregated everything to claim a Rs44,000 crore exposure of Axis Bank” and the “concept of lead bank holding charge for consortium or trustee holding charge for debenture holders or modifications of same charge seem alien to the writer.”
Axis Bank quickly issued a strong denial claiming that its “outstanding loan to SREI entities and SREI group (including SREI entities) stood at Rs411 crore and Rs 800 crore, respectively, as on December 14, 2020.”
It is clear that absolutely no research has been done by the authors. The Bank is contemplating legal action against the publishers. (2/2)
The denials by SREI, which claims to have filed a police complaint, however, are being taken with a pinch of salt. The group is already stressed. The rating agency, CARE has put SIFL’s borrowing on credit watch with negative implications. This was after SEFL a wholly-owned subsidiary of SIFL, filed a scheme of arrangement seeking consent to a slump exchange with transfer of SIFL business to itself. Who knows what the SREI forensic audit will throw up?
After Infrastructure Leasing and Financial Services’ (IL&FS) and Dewan Housing Finance Ltd (DHFL) collapsed like a pack of cards, nobody is willing to dismiss such revelations easily. IL&FS had grown so hydra-like that when the government sacked the board, its press release listed 169 companies not 347. DHFL, which owed a massive Rs83,873 crore to a spectrum of lenders and investors as of 6 July 2019, was found to have diverted a whopping Rs20,000 crore to private entities of the promoters through ‘box companies’.
Now that Oaktree Capital seems set to bag the company through bankruptcy proceedings for Rs36,650 crore, Kapil Wadhawan had the audacity to offer “100% of the principal debt to the creditors” over 7-8 years, with a Rs9,000 crore upfront payment. Does this mean that the group still has such a large sum stashed away, despite the scrutiny of multiple investigation agencies?
The offer is reminiscent of the Essar group’s last-ditch effort to pay off all dues to retain Essar Steel without revealing its source of funds. And a similar offer from the fugitive Sandesara group of Sterling Biotech, whose promoters are holed up in Nigeria without facing any extradition proceedings like Vijay Mallya and Nirav Modi. Even Ravi Parthasarathy, founder of IL&FS, has not faced any action by the government, even as the resolution process is now in its third year.
These examples only prove that allegations of large-scale siphoning of funds sound fairly credible, even when the source of the allegation seems dodgy. Until our regulators and investigation agencies step up their game, the risk of fake rumours, or genuine exposés suddenly decimating corporate entities, is something that investors will have to get used to.