Neeraj Monga, who co-authored the report, lambasted the controlling shareholders, charging them with running the organisation as a piggybank, while proclaiming propriety and espousing credibility.
Speaking to CNBC-TV18, Monga said, Veritas analysed 57 I'Bulls Group companies before releasing the report. "We have looked at 201 financial and legal documents, including annual reports, annual returns, various schemes of arrangement files in Indian courts, stock exchange filings etc," he added.
According to him, in the instance of Indiabulls Real Estate, controlling shareholders have floated two flow-through entities namely IIC Ltd and IINFC Ltd. "The primary aim of these entities is to conduct business with Indiabulls Real Estate, Indiabulls Power and other related group entities. Controlling shareholder owned entities are highly profitable," he elaborated.
He further said, Indiabulls Infrastructure Development (IIDL) merger with I'Bulls Power was not beneficial for the minority investors. "Financials of I'Bulls Power are questionable," he added.
The research firm, he said, has not approached I'Bulls for any clarifications.
Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee.
Q: There are some serious thoughts in your report. You have accused Indiabulls Real Estate to be bilking institutional and retail investors for the benefit of select insiders, the fact that they might be running the organisation as a piggybank. What is the basis of such strong allegations?
A: In order for us to formulate an opinion, we have analysed 57 group companies, including private companies of controlling shareholders. We have looked at 201 financial and legal documents, including annual reports, annual returns, various schemes of arrangement filed in Indian courts, stock exchange filings etc.
Specifically in the instance of Indiabulls Real Estate, we believe controlling shareholders have floated two flow-through entities namely IIC Ltd and IINFC Ltd. IINFC is 100% subsidiary of IIC. The primary aim of these entities is to conduct business with Indiabulls Real Estate, Indiabulls Power and other related group entities. Controlling shareholder owned entities are highly profitable.
For instance, we find that although they have been in existence for only two years, IIC was started in FY10 and so was IINFC, they have reported profits of approximately Rs 130 crore in a single year of FY11. FY12 results are not available with us. We believe these entities are flow-through entities. When you look at the financial statements, these entities don’t seem to have any employee cost associated with them.
This is also in contravention of Indiabulls Group’s own corporate governance statement, which we highlight in our report and is added to the appendix. It says that in official capacity directors shall not enter into a business with a relative private limited company, which they are a member or a director and so on and so forth.
We believe controlling shareholders are actually using the public entity to enrich themselves at the expense of public holders. To the extent these private entities owned by controlling shareholders are profitable, those profits are coming through because costs at Indiabulls Real Estate and Indiabulls Power are inflated by the same extent.
Therefore, we think the governance at Indiabulls Real Estate, Indiabulls Power and therefore the entire Indiabulls Group is highly poor. Any valuation opinion that you try to provide on these publicly traded entities is not going to amount too much because there is redirection of funds going on from these public entities.
Source: www.moneycontrol.com
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