Future Capital pays for Deccan Chronicle's mess

Future Capital had given Deccan promoters & group firms Rs 170 cr against pledge of shares whose value plunged to all-time low of Rs 13.30 on August 2

Deccan Chronicle’s troubles are reflected in its share price that has fallen from a high of Rs 56 in mid-February to Rs 13.30 on August 2, 2012. IFCI has filed a winding up petition on the company for defaulting on its non-convertible debentures (NCDs). Reports say the company has piled up over Rs 1,000 crore in liabilities, a major chunk of which is for buying its IPL team Deccan Chargers.

Events however, have taken a turn for the worse. A news report in DNA says that Deccan Chronicle promoters have raised money by pledging the same shares twice. Karvy Stock Broking has filed a criminal case against the company’s promoters, who will also be facing charges of forgery, fraud and concealment.

While there is little hope for Deccan Chronicle’s investors is the near future, its action will be having an impact on its lender Future Capital, who had given the promoters and their group company Rs 170 crore (Rs 120 crore to Deccan and Rs 50 crore to Aviotech, a group company).

Shares held by Future Capital as pledge of Deccan Chronicle were partly released by its depository on an alleged false signature. With the share price of Deccan Chronicle falling sharply, Future Capital will be losing a major portion of its value on the residual shares left under its control.

Future Capital is in the middle of a takeover where its erstwhile promoter Kishore Biyani has sold 54 per cent and yielded control to Warburg Pincus for Rs 560 crore. Its open offer has however, been postponed on account of delay is getting various clearances.

Deccan Chronicle’s default in NCD premium and sharp erosion in its value of holding of the company’s share along with the fraud will prompt Future Capital to provide for the loss. While Rs 170 crore accounts for 3.67 per cent of its loan book of Rs 4,635 crore, it is 19.8 per cent of its net worth. In the previous fiscal Deccan Chronicle made a profit of Rs 92 crore and has been making profits of around Rs 26 quarter for the last two quarters. Thus the hit of Rs 170 crore will have a severe dent on the company’s financials.

As for its share price, though there will be a knee-jerk reaction for the event, its impeding open offer from Warburg Pincus at Rs 162 per share will prevent it from falling.