Sintex's changing terms on debt papers questioned
Interest rate and redemption premium of debentures received as consideration altered after one year
 "Sintex's changing terms on debt papers questioned")
In the FY15 annual report Sintex said, "On 26th March 2014, the Company had sold / transferred investment (carrying amount Rs.111 crore) in equity shares of Zep Infratech Limited, a wholly owned subsidiary, and unsecured loan of Rs.69.92 crore to the said subsidiary, for a consideration of Rs.183 crore to Khadayata Decor Limited (Khadayata) out of which Rs.182.95 crore is received in form of 3,659 7% Secured Debentures of Rs.5,00,000 each issued by Khadayata. The said debentures are redeemable at par on 25th September, 2017."
However, in the previous year's (FY14) annual report, the terms disclosed were "Rs.182.95 crore is received in form of 3,659 4% Secured Debentures of Rs.500,000 each issued by Khadayata. The said debentures are redeemable on 25th March 2018 at a premium of 140%."
Thus, a comparison of these two statement shows that the company has decided to forego the redemption premium of 140 per cent, but increased the interest payable to 7 per cent from 4 percent. It has also advanced the repayment date by six months.
Accordingly, while the increase in interest rates would earn Sintex about Rs 19.2 crore more, the loss on account of premium works out to Rs 256.13 crore. Based on these calculations, proxy firm Stakeholders' Empowerment Services puts the net loss due to the change in terms at Rs 236 .92 crore.
"There is a substantial change in the terms of debentures received in consideration on sale of a subsidiary. The Company has not provided any information on such change in Annual Report. Considering lack disclosures/ transparency issue, SES recommends that shareholders vote AGAINST the resolution for adoption of accounts," the proxy firm said in its report
An email seeking comments sent to Sintex spokespersons on Friday remained unanswered.
SES also questioned why the promoter of Sintex has given guarantee to the debenture issuer. SES opined that in normal course one does not guarantee third party debts or debts of unknown entities. It has asked to shareholders to find out if the buyer Khadavata was a related party. "And why payment for a running business has been accepted in terms of Debentures that too at interest rate below a triple AAA rated government bonds?" It also questioned why the company was raising funds at higher rate but accepting debentures which are at much lower rate.
According to SES, a net loss of Rs 236 Crore was material and it wondered why such things did not get picked up by Auditors, Audit Committee or even by the Board. "It raises serious doubts on the process as well as outcome. The next question that comes to mind is whether financial statement are reflecting true position?" SES said in its report. It also opposed the resolution to ratify appointment of auditors. The Sintex shareholders would decide the fate of these resolutions at its annual general meeting on Monday.