Paradise Papers: Hyderabad businessman used $258-mn offshore loan for stake in India

Indian subsidiaries also invested in Jagati Publications Ltd, owned by Y S Jagan Mohan Reddy

Written by P Vaidyanathan Iyer | New Delhi | Updated: November 10, 2017 10:48 am
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Prasad V Potluri was involved in politics, software, analytics, power and real estate before shifting over the last five years to film financing, media and entertainment. Hyderabad-based Potluri entered the big league after his offshore entity in Mauritius, Platex Ltd, borrowed $258 million with Deutsche Bank acting as the facility agent.

Documents with Bermuda law firm Appleby show that Platex, an investment holding company held entirely by Potluri, was used by him as a vehicle to acquire a majority stake in his India-listed company, PVP Ventures Ltd. Filings by PVP Ventures Ltd with the Bombay Stock Exchange show that Platex holds 54.12 per cent in the Indian company.

Appleby records show that Deutsche Bank syndicated the loan to Citadel Equity Fund Ltd and Spinnaker Capital LLC. Initially, Platex borrowed $225 million by entering into a share pledge agreement on December 22, 2006 — Potluri was the ‘pledgor’, DB Trustees (Hong Kong) Ltd the ‘pledgee’ and Platex the borrower. The loan amount was increased to $258 million in March 2008.

Records show that the money was used to invest in real estate projects through PVP Ventures Ltd’s subsidiaries, which also invested in Jagati Publications Ltd, a media firm owned by Y S Jagan Mohan Reddy, YSR Congress chief and son of former Andhra Pradesh Chief Minister YS Rajasekhara Reddy.

PVP Ventures Ltd’s annual report for 2010-2011 state that Potluri was questioned and his offices searched by the CBI following an investigation ordered by the Hyderabad High Court into investments in Jagati Publications Ltd. Potluri was named as an accused in the CBI FIR, which alleged that he received land as a quid pro quo for investing in Jagati.
According to PVP’s latest annual report for 2016-17, it invested Rs 130.97 crore in Jagati. Till 2015-16, it didn’t make any provision for this unquoted investment. But in 2016-17, the latest annual report shows, it provided Rs 112.78 crore towards diminution in value of this investment.

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Appleby records show that when Platex was raising funds from lenders, Potluri entered into a guarantee agreement with the offshore entity. They show that Citadel Equity Fund Ltd approached courts in India to prevent Potluri and his companies from allegedly stripping the PVP Ventures Ltd and its subsidiaries of their assets in November 2009.

According to Appleby documents, the facility was secured by a fixed and floating charge over the assets of Platex under a deed dated December 22, 2006, a pledge over all shares of Platex and a personal guarantee of Potluri. The terms required payment of 50% of the outstanding and $10 million in premium in December 2009. The balance amount was to be paid in December 2010. But the lenders moved the court in May 2010, having failed to secure repayments. Platex, the lenders alleged, had not been meeting its interest payment obligations since June 2008.

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According to complaints made by the lenders in the Supreme Court of Mauritius, the conduct of Platex belied assurances “after it came to light that some of the Indian subsidiaries had disposed of significant assets to third parties without obtaining the requisite approval of the lenders and utilised the proceeds without consulting them”. They further instructed the Facility Agent to declare an Event of Default under the Facility Agreement in November 2009 and accelerate the facility, making it immediately due and payable.

The lenders were also keen that Platex convert part of the debentures due for conversion by January 2010 — 27,255 out of 40,644 — into redeemable convertible preference shares and not equity. This provided them an easy way to repatriate cash generated through sale of assets in PVP to Platex. If converted into equity, there would be very few or limited means in which cash in PVP Ventures may be repatriated to Platex.

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But the annual report of PVP Ventures Ltd shows that 1.34 crore shares were issued to Platex upon conversion of 27,355 FCDs of Rs 100,000 each at a conversion price of Rs 204 per share in terms of the scheme of amalgamation during 2010-11.

PVP Ventures Ltd has a string of subsidiaries which operate in the real estate, media and entertainment space. In 2016-17, the consolidated profits of the company stood at Rs 8.93 crore on a consolidated total income of Rs 156.66 crore.

Its annual report for the year lists four wholly-owned subsidiaries — PVP Corporate Parks Pvt Ltd, PVP Global Ventures Pvt Ltd, PVP Media Ventures Pvt Ltd and Safetrunk Services Pvt Ltd. It has majority stake in two subsidiaries, New Cyberabad City Projects Private Ltd, Picturehouse Media Ltd. And, four step-down subsidiaries, Adobe Realtors Pvt Ltd, a wholly-owned subsidiary of PVP Global Venture, and PVP Capital, PVP Cinema Pvt Ltd and Picturehouse Media Pvt Ltd, Singapore, which are wholly-owned subsidiaries of Picturehouse Media Ltd.

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According to records, the capital market regulator SEBI has fined Potluri and his companies to the tune of Rs 30 crore for alleged non-disclosure under takeover and insider trading regulations. This includes a penalty of Rs 15.15 crore on Potluri and PVP Global Ventures Private Ltd, a wholly owned subsidiary of PVP Ventures Ltd. Both these orders have been challenged by the company and are pending at the Securities Appellate Tribunal, according to its latest annual report of 2016-17.

Separately, auditors Brahmayya & Co of PVP Ventures Ltd have qualified the company’s financial statements of 2016-17 and invited shareholders’ attention to investment of Rs 560.5 crore in a few subsidiary companies. “…the erosion in the net worth of these subsidiary companies, their dependence on the holding company to continue as a going concern, absence of cash flows, delay in commencement of projects…indicate the existence of material uncertainty in recoverability of net carrying value of investments,” the auditor noted.

Response from Platex Ltd:

1. Was Platex Ltd, a company incorporated in Mauritius used as a vehicle to invest in PVP Ventures Ltd?

Ans – Yes, Platex Ltd., was the vehicle formed to invest in PVP Ventures Pvt. Ltd. Upon formation, the funds that were raised from lenders vide facility agreement dated 22.12.2006, $207 million which is in INR 886.44 crores in 2007-08, against which PVP Ventures Pvt Ltd has issued 88,644 FCDs of Rs. 1,00,000 each with coupon rate of 14.5%. Subsequently, issued FCD’s were converted as mentioned below to equity shares of PVP Ventures Ltd

2. Are you the sole shareholder in Platex Ltd?

Ans – Yes, Prasad V. Potluri is the sole and 100 percent shareholder of Platex Ltd. The share capital of Platex Ltd is 5415000 ordinary shares of USD 1 each. Mr. Prasad V. Potluri holds the same. (Certificate no 2 & 3)

3. Did Platex Ltd raise $258 million ($225 million in December 2006 and another $33 million in March 2008) from Deutsche Bank AG?

Ans – Platex has raised a total of $258 million in two tranches through facility agreement dt. 22.12.2006 and subsequent agreements

4. Were these funds fully deployed was equity in PVP Ventures Ltd?

Ans – $207 million which is in INR 886.44 crores is invested in PVP Ventures Ltd i.e, PVP has issued 88,644 FCDs of Rs. 1,00,000 each with coupon rate of 14.5%. Part of the funds were paid as fees to advisors and interest costs. In addition the second tranche of $33 Million were deployed by Platex Ltd., towards the acquisition of an indirect minority interest in a Power Plant controlled by Lehman Brothers.

Private Limited utilised the FCDs proceeds as follows:

Money paid by PVP Energy Private Limited towards take over and purchase 3,54,53,587 (61.25%) equity shares of SSI Limited

5. Are AMB India Investments LLC and Spinnaker Capital LLC the new lenders (with the $258 million facility now being transferred to them)?

Ans – To the extent of $158 million, the facility was transferred from Citadel Equity Fund Ltd to AMB India Investments LLC vide transfer certificate dated Dec 16, 2009. Attached is the amended facility agreement.

6. Did you provide guarantee to Platex Ltd when the latter borrowed these moneys?

Ans –Mr. Prasad V. Potluri is personal guarantor in addition to the security provided to lenders by Platex Ltd., as per Guarantee agreement dt. 22.12.2006

7. Were part (Rs 130.97 crore) of these borrowings also used to fund Y Jagan Mohan Reddy’s company Jagati Publications?

Ans –The investment made in Jagati Publications were not from borrowings of Platex Ltd. The investments made are from the internal sources of PVP Ventures Ltd. As mentioned, the investments were part of a broader strategy to enter into the media and entertainment industry. The group now is a leader in the South Indian entertainment and media space.

8. Did Platex Ltd default over repayments as per the agreement with lenders who claim Platex has not been meeting its interest obligations since June 2008?

Ans – Post the bankruptcy of Lehman Brothers in September 2008, the development plans of the acquired asset of PVP Ventures Ltd., popularly known as Binny Mills in Chennai was stalled by the development partner Unitech Ltd. At which time, management discussed with lenders to provide additional capital as committed for the acquisition of a power plant which was discussed and approved earlier. The investors and lenders Owing to the distress in the financial markets around the world were not in a situation to fund further.

9. What is the status of the Supreme Court of Mauritius hearings on this case; the lenders alleged that some of the Indian subsidiaries of PVP Ventures had disposed of significant assets to third parties without obtaining the requisite approval of the lenders and utilised the proceeds without consulting them?

Answer – Request to review the entire case filed in the Supreme Court where in Platex Ltd., along with Prasad V. Potluri made a counter claim against the investors. The claim not only stated the lenders were SECURED creditors and had adequate security for their loans and furthermore have not delivered funds for future progress plans of the company as approved by them. Platex Ltd has obtained a favourable ruling and pursuant to which, the lenders settled the matter. Court order dt 02.02.2011 is attached for your reference.

10. What’s the status of the CBI investigation of PVP’s investment in Jagati Publications, the venture of Y S Jagan Mohan Reddy?

Answer: In reference to your inquiry on Jagathi Publications, we are one of the few shareholders that received a clean chit from CBI as filed by them via a memo in CBI court. In addition, I have neither heard nor dealt with Appleby anytime during my career over the past 20 years. When Platex Ltd was formed, the residing agent was Multiconsult Ltd in Mauritius. All the financial statements of Platex Ltd., are filed with the regulators in Mauritius and available in the public.

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