Brewery Acquisitions Under Scrutiny

The company had lent huge amount of ICDs to 18 companies, of which seven were SWC subsidiaries.

These loans, shown in the company accounts as "loans on advances", were paid out of funds it itself borrowed from other corporates.

This was a method to use itself as a "conduit" for raising finance for its subsidiaries, according to a DCA report.

The deposits were utilised by the subsidiaries to pick up shares in distilleries and breweries as part of Shaw Wallace's acquisition spree, the report adds.

These borrowed funds were for shorter periods at interest rates ranging from 26 to 32 per cent.

 

But the funds were lent to SWC subsidiaries at lower rates, varying between 22 to 28 per cent.

The liquor major, by its own admission, had borrowed for periods of 90 to 180 days. However, the deposits given to subsidiaries were for a period of three years.

Though the liquor major had claimed that these loans were "in the best business interest of the subsidiaries", the department of company affairs says, "these did not show commensurate returns for the company or its subsidiaries."

As a result of its decision to waive interest against ICDs lent to subsidiaries, Shaw Wallace had also taken on an additional interest burden by borrowing funds at higher interest rates than they were lent out at.

The accrued interest on deposits had run up to Rs 50.93 crore in 1994-95, from Rs 0.45 lakh in 1992-93.

The financial performance of the subsidiaries dealing with liquor and beer is not "commensurate with the large funds given by the company to its subsidiaries and other companies", the DCA report states.

It also notes that in 1994-95, when the borrowings went up by Rs 211 crore and when such funds were passed on to subsidiaries and other companies, it should have been natural for the company to give full details of group performance.

But the company's annual report for 1994-95 "does not contain any group accounts or figures regarding group performance, thereby endeavoring to suppress truthful financial information."

Shaw Wallace, when contacted on the issue, said that closer examination of the specific points raised in the department of company affairs report was necessary.

However, a Shaw Wallace official, on conditions of anonymity, said that the price paid out for breweries would normally depend upon the relative position of the company vis-a-vis rivals in the marketplace, and that it was impossible to come to an objectively assessed precise value of such assets.