CDR block for Shree Ganesh Jewellery

Some lenders want more information, such as a forensic audit report

The debt restructuring proposal of Shree Ganesh Jewellery House Ltd has hit a hurdle, with some lenders wanting a further probe into its losses before deciding on support for the proposed package.

A senior public sector bank executive said the proposal came up for the discussion at a corporate debt restructing (CDR) meeting last week. Some sought an in-depth review, since the losses reported for the second quarter (July-September) of 2013-14 were huge. The Kolkata-based company reported a loss of Rs 1,047 crore in that quarter, while it posted a net profit of Rs 341 crore in the third quarter ended December, according to a filing with the BSE.

It is engaged in mining, refining, jewellery manufacture, retailing, solar energy, gold loan financing and bullion trading.

Lenders would like to know why a company suddenly faces problems and reports huge losses. There is a need to go beyond the income statements. Perhaps a forensic audit could throw light on developments, said another executive with a Mumbai-based state lender. Such audits determine whether any fraud had taken place. This could involve analysis of trends and substantive checking of selected transactions. The accounts might be examined from the beginning.

In December 2013, the company approached State Bank of India (SBI), lead bank of the consortium, with a plea to refer the case for CDR. SBI gave a report to the CDR cell for admitting the case. The mechanism permits viable companies more time to meet debt obligations, subject to certain terms and conditions. The packages typically could include provisions such a moratorium on, an elongated payment schedule, reduction in interest rate and capital infusion by promoters.

Last month, one of the financial institutions in question, Export-Import Bank of India, appointed Lokesh Kumar as a nominee on the board of directors. A bank executive said this arrangement was meant to monitor the business and working of the company. On November 8, 2013, rating agency CARE had suspended the ratings assigned to the bank facilities/instruments of Shree Ganesh, as the company had not furnished the information required for monitoring.

A month before (October), CARE had downgraded ratings for the company's long-term and short-term loans from A+ to BBB+. The revision factored in the rising level of debt and collection period ended March and decline in profitability in FY13 & the first quarter of FY14.