SAHARA GROUP - ALL DOES NOT SEEM WELL
By Ruma Dubey
You see the Sahara group splashed all over and yet somehow, there has always remained a niggling sense of unease. There is always this one big question at the top of the mind – what does the company do exactly to earn so much money? The group, very high profile is at the same time, very low key when it comes to divulging financial details. Owning television channels, creating its own new hill station’, buying an IPL team in Pune when it is headquartered in Lucknow, buying the Grosvenor Hotel in London and New York Plaza Hotel, a 42.5% stake in Formula One's Force India Formula 1 Team, sponsors India national cricket team and India national field hockey team.; somehow this image does not gel with its other image of being so ‘shady’ when it comes to financial dealings. The group has been mired in controversy when it comes to its various ‘deposit’ schemes. The RBI and SEBI maintain a hawk’s eye on this group and yet the group continues along, unperturbed, unhindered.
On 31st August 2012, the Supreme Court ordered the company to repay Rs.24,400 crore to investors in two of its companies—Sahara India Real Estate Corporation and Sahara Housing Investment Corporation. This has to be repaid within three months and will carry an interest rate of 15%. This order was first passed in Nov 2010 after these two companies were found raising funds from the public through Optionally Fully Convertible Debentures (OFCDs) without confirming to prudent disclosure and other investor protection norms, which govern such public issues. Sahara had taken the battle to Supreme Court and looks like, Sahara lost this battle. Rs.24,000 crore to be repaid by a Indian company? Sounds more like some RBI payment!
A year ago, on 30th Aug 2011, the company had the audacity to issue an full-page advertisement, saying that, Sahara India Financial Corporation (SIFC) will be prepaying Rs73,000 crore by December 2011, four years before the RBI mandated wind-up. SIFC is essentially a residual NBFC and as per this controversy, it had Rs.20,000 crore in deposits, which were to be wound up by June 2015. RBI had stipulated SFIC to bring down liabilities to Rs.15,000 crore by June 2009 and Rs.9000 crore by June 2011. So what is this math of Rs.73,000 crore? This is almost 1% of India’s GDP. And it is going to repay that? Is it bigger than Reliance Industries also? If yes, then how come its name never gets mentioned amongst the top earners for the ex-chequer or how come its two listed companies are not even a part of the Sensex? For a group which is planning to prepay 1% of India’s GDP, how come it has no standing whatsoever in India Inc? What is extremely worrying though is the fact that despite all these SEBI and Supreme Court orders, people continue to rush in to deposit money with Sahara.
The group, on its website states that as at 30th April 2011, total money raised since 1978 from public had a book vaule of Rs.1,64,909 crore. It has earmarked total repayment against above liabilities including interest at Rs. 1,24,831 crore. Net outstanding liability as at 30the April stood at Rs. 40,078 crore and this does not include the current order for repayment.
The big question is – why did it need to raise so much money? None of its listed companies have even mentioned about expansion plans. Infact they both are too tiny vis-à-vis the Rs.73,000 crore payout. Sahara Housing Finance Corp as at 30th June 2012 had a miniscule net profit of Rs.45 lakh and Rs.2.22 crore at end of FY12. Market cap is at Rs.49 crore. 71.35% of its equity is held by three group companies. The other listed company, Sahara One Media at end of Q1FY13 had a net profit of Rs.1.73 crore but it had ended FY12 with a net loss at Rs.22 lakh. Here 74.99% stake is held by 10 shareholders, including Subroto Roy and his wife.
Interestingly, its group company, Sahara India Commercial Corporation in 2009, issued shares to its 2.6 million shareholders. This meant, after RIL and Reliance Power, it had the third largest base of shareholders. Why did it then not get listed? Because that would mean transparency and would involve corporate governance issues? Section 67 of The Companies Act construes an offering of shares or debentures to 50 or more persons as an offer or invitation to the public, for which norms listed out in SEBI Regulations would need to be followed. These include issuing of prospectus, compliance with the procedures and other disclosure norms.
Finances of the group are extremely complex with scores of group companies, details of which are understandably, not divulged on the website. People like you and me would not even think of investing in a company like Sahara. And knowing this fully well, the Sahara group targets rural India, especially UP with one scheme after the other. It has schemes which start from even Re.1! It operates innumerable Ponzi schemes and that is what earns it the moolah. The various industries and companies are stated to be just ‘fronts’. There was news of the Sahara group bailing out beleaguered Kingfisher Airlines, which the group declined but that is the kind of money the group has!
Somehow, that niggling doubt when it comes to this group just refuses to go, like the feeling of the empty space after a tooth has been extracted. Queasy.