CHRONICLE OF COLLAPSE
Media baron T. Venkattram Reddy faces charges of forgery and fraud even as his cash- strapped firm, with over Rs 4,300 crore in loans, is on the brink of going under
The high- flying chairman of the Hyderabad- based Deccan Chronicle group, Tikkavarapu Venkattram Reddy, 53, is finally grounded. His flagship English daily Deccan Chronicle is virtually up for sale, and his firm, Deccan Chronicle Holdings Limited ( DCHL), is teetering towards bankruptcy. Private equity firm Peepul Capital, which wanted to buy DCHL’S debts and later sell it to a potential buyer, has now abandoned the idea.
DCHL’S total loans are allegedly over Rs 4,300 crore— a result of a spending spree with no rational explanation. The debts, both secured and unsecured, are with various banks and non- banking financial institutions. Significantly, many of these are in Reddy’s name, not DCHL’S.
Lenders are chipping in with information, hoping that market regulator Securities Exchange Board of India ( SEBI) will find out where the money has gone. Analysts say what is surprising is that DCHL, with such a big liability, had managed to buy back shares worth Rs 227 crore from the public last year.
DCHL stocks crashed to an all- time low of Rs 12.25 on August 9. About 70 per cent of the shares are pledged with lenders. Once offered at a premium of Rs 152 on a face value of Rs 10 during the December 2004 initial public offer ( IPO), the DCHL share now has a face value of Rs 2, after being split in January 2007. Several bank accounts of DCHL have been frozen. Apprehending the worst, lenders are demanding DCHL pay back without delay. On August 17, DCHL disclosed that its printing presses were pledged for liquidity on August 3.
The beleaguered firm, which publishes Financial Chronicle, Asian Age, Deccan Chronicle and Andhra Bhoomi, has already put Deccan Chargers ( DC), its IPL team, on sale for about Rs 1,000 crore. DCHL holds 80 per cent stake in DC. There are no visible buyers.
Under IPL rules, owners are not allowed to mortgage franchisee teams and use the funds generated from it elsewhere. Thus, when two banks
DECCAN CHRONICLE HAS PUT ITS IPL TEAM DECCAN CHARGERS ON THE BLOCK
asked the IPL Governing Council for a security on their loan to DC, the Council, on August 14, woke up to claim that DC had borrowed Rs 480 crore from one bank and Rs 170 crore from another by mortgaging the franchise. It gave DC two weeks to come clean. To add to Reddy’s woes, in mid- July, a London court ordered DCHL and DC to pay £ 10.5 million ( Rs 90 crore) to former DC chief executive Tim Wright for breach of contract. DC is also yet to pay its players for the 2012 season.
Fearing that DCHL may become insolvent, on July 27, Industrial Finance Corporation of India ( IFCI) urged the Andhra Pradesh High Court to wind up DCHL under the Companies Act, 1956. DCHL owed IFCI Rs 27.80 crore and had failed to redeem 250 non- convertible debentures on June 26. Reddy promised IFCI on June 30 that he would pay in full by July 4. But when a Rs 25- crore DCHL cheque bounced, IFCI appealed to have the court appoint a liquidator to restrain DCHL from disposing of, transferring or encumbering its own assets.
To top it all, on July 31, Karvy Stock Broking Limited filed a criminal case with Hyderabad Police against Reddy and DCHL’S two vice- chairmen— his brother T. Vinayak Ravi Reddy, 51, and P. K. Iyer, 46— alleging they had used forged letters to create a false picture of their holdings, and of cheating and forgery. If found guilty, all three could face at least three years in jail, and fines.
Karvy says that based on a forged letter, DCHL had executed a power of attorney in favour of Kishore Biyani’s Future Capital Holdings ( FCH), claiming they had 11,28,51,000 shares available as security. In reality, the owners had already pledged the same to IDFC, ICICI and Religare Finvest, allegedly using another set of forged letters to show they held more shares than they actually did. Police sources told INDIA TODAY that a full picture of what happened to the money may emerge by end- August.
Ironically, until a few months ago, DCHL was reportedly in the race to buy FCH. Only on July 2, 2012, DCHL promoters had created a mortgage of Rs 170 crore in favour of IDFC. On August 3,
ANALYSTS SAY A SHIFT FROM DCHL’S CORE MEDIA BUSINESS TO VENTURES LIKE THE IPL FRANCHISE AND AVIATION HAS LED TO ITS HUGE LOSSES.
this loan was transferred to the Future group, against 54 per cent of its stake in FCH. With its finances going haywire, DCHL told stock exchanges the same day that it had extended its 2011- 12 financial year to September 30, 2012.
Alarm bells rang aloud when DCHL Managing Director N. Krishnan resigned on July 29. DCHL defaulted on its debt obligations, forcing rating agencies to downgrade its short- term borrowings to default grade. Meanwhile, it is reported that the DCHL Vice-Chairman P. K. Iyer has gone missing. It was Iyer, as DCHL’S CFO, who was largely responsible for its IPO as well as for raising loans, and led the Reddy brothers to their financial ruin. Iyer relied on glibness to sell DCHL to lenders, raise funds, and diversify DCHL into the Odyssey chain of stores and aviation.
More trouble lies ahead. In interim orders on August 2 and 3, Delhi’s Debts Recovery Tribunal ( DRT) attached five accounts of DCHL. On August 7, DRT Hyderabad ordered DCHL’S promoters not to transfer their shares to third parties till the first week of September. The desperate promoters are trying to salvage the situation by mortgaging more assets, including personal property.
How has the trio of T. V. Reddy, Ravi Reddy and Iyer, with identical holdings of 24.61 per cent each in DCHL, brought things to such a pass? Analysts say the shift from their core media business to ventures like IPL and aviation has led to DCHL’S heavy losses. Estimates suggest that in five seasons, DCHL, which bought DC for $ 107 million ( Rs 588.50 crore), may have spent close to $ 60 million ( Rs 330 crore) in annual instalments to the Board of Control for Cricket in India, and another $ 30 million ( Rs 165 crore) in player payments.
They notched bigger losses in two stillborn aviation firms— first with Flyington Freighters, which placed an order for 12 Airbus A330 in 2007 but cancelled it in 2011— then with Aviotech, that had reportedly placed an order for 10 Sukhoi Superjet 100s, which was also later cancelled. In each case, DCHL had to forfeit large deposits. This has fuelled speculation on what happened to all the money. Reddy’s lifestyle— he owns a fleet of Bentleys, a Ferrari, other cars and horses— is legendary. But it doesn’t account for the thousands of crores of rupees.
Ever since the crisis, Reddy has shied away from the media. Instead, in a Page 1 statement in Deccan Chronicle, he acknowledged DCHL is facing a liquidity crisis, though not a solvency issue as claimed by some lenders. But with DCHL’S assets valued at Rs 2,200 crore, even in inflated estimates, it is unclear how it borrowed Rs 4,300 crore and landed in dire straits.