Proxy advisory firm InGovern on Thursday said a battle for control of fraud-hit CG Power and Industrial Solutions Ltd has led to value destruction for minority shareholders of the company.
The company had in August last year said that an investigation instituted by its board had found major governance and financial lapses, including some assets being provided as collateral and the money from the loans siphoned off by "identified company personnel, both current and past, including certain non-executive directors". It fired promoter chairman Gautam Thapar on August 29.
"The investigative authorities are looking into allegations on (i) usage of funds and land assets from the company by promoter-connected entities, (ii) borrowings against the assets of the company for the benefit of other group companies, (iii) vendor transactions with promoter-connected entities," InGovern said in a statement.
It said an analysis of the issues at the firm reveals that "a battle for the boardroom and battle for corporate control has led to value destruction for minority shareholders of the company."
"However, could these transactions have happened without Board approvals, and without the knowledge of key management personnel and auditors? Where these Board approvals shared with SEBI in their investigations? What role did promoters, executive directors, the managing director & CEO and independent directors play in this?," it asked.
It said the roles of various stakeholders -- the board, key management personnel, internal auditors, bankers to the company, lenders to holding company, statutory auditors, promoters and other group companies -- need to be examined.
"KKR India had a debt exposure to the holding company Avantha Holdings which the latter was unable to repay fully. This may be why the relations went downhill between KKR India and the promoter of CG Power, Gautam Thapar.
"It seems that upon request by Avantha Holdings to convert the debt into equity, KKR India asked for the appointment of Narayan Seshadri initially as a consultant but later as an Independent Director. Seshadri has close business interests with KKR India," it said.
Seshadri and KKR India did not immediately respond to e-mails sent for comments.
According to Thapar, the events at CG Power have been orchestrated by the lenders as KKR India wanted to oust the promoters and take control of the company.
InGovern said banks and NBFCs seem to have been fully cognizant of the situation in CG Power and other group companies and yet continued to fund and increase group company exposures against guarantees of the listed company.
"Would the banks have curtailed the bank limits of CG Power as other group companies were in stress?," it asked. "What role did KKR play in the entire saga? Did the default of loan to holding company trigger these series of events that led to control of management, the boardroom and eventually the company by KKR? Why didn't the Board look into the conflict of interest of Mr. Narayan Seshadri who was appointed as an independent director?"
Stating that overall it was a huge loss of value for minority shareholders, it said all elements of corporate governance seem to have failed minority shareholders -- key management personnel, independent directors, statutory auditors, internal auditors, banks, NBFC lenders and whistleblowers.
"SEBI and other regulators need to investigate this matter holistically on the role played by all stakeholders. Regulators need to investigate whether a battle for corporate control has played out in this manner," it added.