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CG Power slumps after uncovering financial irregularities

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The stock hit 20% lower circuit at Rs 14.75 at 12:29 IST on BSE after an internal probe has uncovered several irregularities in the financial statements of the company.

The announcement was made before market hours today, 20 August 2019.

Meanwhile, the S&P BSE Sensex was down 104.84 points or 0.28% to 37,297.65.

On the BSE, 1.65 lakh shares were traded in the counter so far compared with average daily volumes of 2.84 lakh shares in the past two weeks. Till now, the stock hit a high and a low of Rs 14.75 which is also a 52-week low for the scrip. The stock hit a 52-week high of Rs 62.05 on 21 Aug 2018.

The company set up an Operations Committee ("Ops Committee") in March 2019. The committee was made aware of some unauthorised transactions by certain employees of the company. An independent legal firm was appointed to probe certain financial wrongdoings by certain employees of the company. It submitted a report, pointing out certain misrepresentation in financial statements of the company and unauthorized financial transactions.

The total liabilities of the company and the group may have been potentially understated by approximately Rs 1,053.54 crore and Rs 1,608.17 crore, respectively, as at 31 March 2018; and by Rs 601.83 crore and Rs 401.83 crore, respectively as at 1 April 2017.

Advances to related and unrelated parties of the company and the group may have been potentially understated by Rs 1,990.36 crore and Rs 2,806.63 crore, respectively, as at 31 March 2018; and by Rs 1,479.34 crore and Rs 1,331.47 crore, respectively as at 1 April 2017.

Certain assets of the company that were purportedly provided as collateral without due authority; and the Company was made a co-borrower and/or guarantor for enabling ostensibly unrelated third parties to obtain loans without due authorisation. The moneys so obtained were immediately and without due authorisation routed out of the Company, either by itself or from its subsidiaries or ostensibly unrelated parties to certain related parties.

The net worth of the company was potentially understated due to unauthorised and inappropriate write-offs and charges debited to the Profit and Loss statement of the company during the year ended 31 March 2018, and 1 April 2017.

These were purportedly carried out by identified company personnel (both current and past) including certain non-executive directors, certain KMPs and others identified employees ("CIP") in breach of the Rules of Procedure of the company ("ROP"), and/or without proper information to or authorization.

The financial results of the previous quarters for the years ended March 2019, 2018 and 2017 could be impacted as a consequence of these adjustments. As a result of the above findings the opening balances of financial year ended 31 March 2019 and earlier years may have to be restated.

Meanwhile, the company's board has decided to conduct a detailed forensic investigation to establish wrongdoing accountability and any other residual implications. The board is fully committed to and will cooperate with the relevant regulatory authorities, as they may require, to ensure compliance with law. The company will undertake requisite legal actions to protect its interests vis-a-vis each of the specified suspect transactions and entries.

As on 30 June 2019, Yes Bank held 12.79% stake in the company. The private sector lender is down 7.04% to Rs 71.30 after the disclosures.

Avantha Group Company, CG Power and Industrial Solutions (CG) is a global pioneering leader in the management and application of electrical energy. CG's offerings include electrical products, systems and services for utilities, power generation and industries

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, August 20 2019. 12:31 IST