First Winner Industries: Wisdom of SBI in giving Rs. 207 crore

By Geetanjali Kedia

State Bank of India (SBI) has released an ad on Saturday, 12^th October 2013, for Notice of Defaulter Director/Guarantor by Mr. Rinku Patodia and Ms. Anita Patodia, with respect to the following borrowers:

On reading this ad, following points need to be considered, while analysing the defaults, which directly questions the wisdom of SBI in granting these financial facility, along with the role of  ex CMD of SBI, Promoters, Auditors and Financial Advisors of these borrowers.

1. Company 1 and 2 are the wholly owned subsidiaries of First Winner Industries (FWI), a company listed on BSE and NSE with market cap of Rs. 18 crore.
2. FWI had also availed a term loan of Rs. 30.54 crore and working capital finance of Rs. 34.22 crore, as at 31.03.2013, from SBI and both these accounts are also NPA.
3. So why, dues of FWI of Rs. 64.76 crore plus interest thereon, is not covered in this ad, for which the Guarantors and Directors are the same?
4. FWI went public on 9^th June 2008, with a public issue of 55 lakh equity shares of Rs. 10 each, at an issue price of Rs. 125 per share and had mobilised Rs. 68.75 crore, from such issue. Almondz Global Securities was the BRLM to the issue.
5. One of the object of IPO of FWI was to pre-pay term loan of Rs. 18 crore. FWI had total secured loans of Rs. 25.78 crore on 31.01.2008, having availed from SBI and State Bank of Indore. Of this, SBI extended facilities of Rs. 19.54 crore (Rs. 6.50 cr. working capital and Rs. 12.13 cr. as term loan) and State Bank of Indore granted Rs. 6.07 crore as term loan. In the past, as State Bank of Indore was merged with SBI, entire dues to FWI are largely from SBI.
6. FWI had a consolidated debt of Rs. 183.09 crore, as at 31.03.2013, of which SBI had granted over 90% of such amount. On adding dues of companies 3 and 4, as stated hereinabove, the total dues works out at Rs. 223.46 crore, of which over 90% is sanctioned by SBI.
7. Strangely, FWI had receivables of Rs. 216.26 crore on 31.03.2013, while inventories were nil. So, on what basis were short term borrowings of about Rs. 120 crore given by SBI?
8. Dr. M. K. Sinha, Ex CMD of SBI, was the non-executive chairman of FWI at the time of its IPO, as also on 31.03.2013. So, does he have any role in influencing SBI to grant these financial assistance? Even the directorship of Dr. M. K. Sinha in Bang Overseas, Austral Coke & Projects, Jhaveri Flexo, Prag Bosimi, Radaan Media and Amines & Plasticizers is nothing to talk or cheer about, as seen from RHP of FWI.
9. The burning issue and question is, on what basis had SBI granted financial assistance to FWI and 2 of its WoS and 2 Associates? Also, why is the total picture, including dues of FWI not reflected in public notice? Why are the sale of plant and machineries of these companies not attached and initiated? Why are the working capital facilities given, inspite of inadequate or non-existence of current assets with the borrowers?
10. Said defaulter directors / guarantors have formed inoperative and shell companies, post IPO of FWI, largely to avail bank finance, by projecting those companies as manufacturing companies, while in effect, they were used for share market operations, round tripping, inflating financial performance of FWI , as also, for money laundering.
11. Share price of FWI is now ruling at Rs. 3.70 on BSE. Defaulter company 3 and 4 are the shareholders of FWI, each holding close to 37 lakh shares of FWI, as at 30.09.2013. Does it mean that borrowers 3 and 4 have diverted the bank finance for purchase of shares of FWI? Why has SBI not kept an hawkish eye on this transaction?

By going through these accounts, one can infer that it is a clear case of nexus between Ex-CMD of SBI, Promoters, present officials of SBI as also, auditors of the company, where such gross violations and loss of over Rs. 270 crore (including IPO funds) has been done.

Maybe, many such skeletons will come out of the closet in future, from many such financial assistance having been given by PSU banks to such bogus companies and promoters. Now, we have realized and understood why even audited accounts do not give a true and fair view of the affairs of a company. Probably a reason why PSU banks are ruling at such pathetic and lousy valuations!

Finally, it reflects why one should avoid such companies which are only involved in round tripping and market operations. As a matter of record, we strongly criticised the IPO of FWI, including its BRLM Almondz Global Securities, when they went public and advised to avoid the issue.

For now, we hope that SEBI, SBI Scrutiny Committee, ICAI, EOW will look into this matter of wealth destruction.