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Banks ask HFCL to disclose use of Packer funds

Tamal Bandyopadhyay

Banks that lend working capital to telecom major Himachal Futuristic Communications Ltd are putting pressure on it to disclose information about how the Rs 10.39 billion pumped by the Kerry Packer-promoted Consolidated Press Holdings Ltd (CPHL) into the company last year has been used.

Some of the banks have already decided against increasing the working capital limit for HFCL pending disclosure of the information.

State Bank of India has withdrawn its participation in the Rs 2 billion loan syndication, lead managed by the Industrial Development Bank of India for HFCL Infotel Ltd, an HFCL subsidiary that holds a basic service licence agreement for the Punjab circle.

At a meeting of bankers with the HFCL brass in Delhi on May 5, the banks directed the company to give in writing the exact break-up of the deployment of the Rs 10.39 billion and to convince the managements of these banks that HFCL deployed the funds properly.

Barring HFCL chairman Vinay Maloo, the group's entire brass, including group chairman Mahendra Nahata and chief financial officer CK Ghoushal, was present at the meeting. The meeting was also attended by senior executives of the State Bank of India, United Bank of India, Bank of India, Global Trust Bank and a few other banks.

"The company could not convince the bankers about the use of the Rs 10.39 billion, pumped by CPHL into HFCL. The group chairman said that part of it was used to pick up a stake in Amitabh Bachchan Corporation Ltd (AB Corp) as well as Zee's Digital Superhighway. He also gave a list of companies in which HFCL had invested money. However, the bankers are not happy with his explanations," a banking industry source said.

Besides raising Rs 10.39 billion by placing a 10 per cent equity stake with CPHL, HFCL raised another tranche of Rs 7.35 billion last year via a private placement of another 10 per cent stake, with a clutch of foreign institutional investors (FIIs).

The money raised from the FIIs was used to prepay high-cost term loans and to fund investment in HFCL Infotel.

Nahata told Business Standard that HFCL had not diverted any money anywhere. "Our working capital exposure is only to the tune of Rs 600 million. We have no role in insider trading or share manipulation. HFCL has not lent money to Ketan Parekh firms to undertake market operations for any stock," he said.

Explaining the use of the Rs 17 and odd billion, Nahata said: "We picked up a 28.5 per cent in AB Corp for Rs 1.65 billion (early this week both Maloo and Ghoushal of HFCL categorically denied that the group had made any investment in AB Corp through any listed company of the stable). "We also pumped Rs 1.5 billion into the Zee-promoted Digital Superhighway. The rest of the money was used to pre-pay high cost debt, meet working capital and capital requirements, as well as for R&D activities. We also invested in the Punjab basic circle and group joint ventures like Consolidated Futuristic Solutions, Nine Broadcasting India Pvt, etc."

HFCL is a company with the lowest credit risk and is placed immediately after zero-risk quasi-sovereign outfits like Indian Oil. Its current ratio and liability to capital ratio, etc, are possibly the best in the industry.

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