The Enforcement Directorate (ED) is probing the sale of a 10 per cent stake in Mumbai Indians in 2009 by Anshu Jain, co-CEO of Deutsche Bank AG, to Teesta Retail Pvt Ltd, a shareholder of Indiawin Sports Pvt Ltd which owns the IPL franchise and is part of the Reliance group.
Officials said the probe is part of a wider investigation into the valuation of IPL franchises starting with Mumbai Indians and Kolkata Knight Riders, which is promoted by Bollywood star Shah Rukh Khan.
In Jain’s case, the ED has questioned the logic of the sale at the same price at which the stake was acquired, considering the rising valuations of IPL teams at that time, said a government official familiar with the development.
Teesta Retail Pvt Ltd is a part of Reliance Industrial Investments and Holdings Ltd (RIIHL) which is a subsidiary of Reliance Industries Ltd. As on September 30, 2014, RIIHL held 99.99 per cent stake in Indiawin Sports.
Jain, a cricket fan who plays for the Deutsche Bank team, had bought the 10 per cent stake (15,000 shares) in Mumbai Indians at a paid-up value of Rs 10 a piece in June 2008 and sold it in 2009 at the same price at which it was bought, according to filings with the Registrar of Companies (RoC).
According to independent brand valuer, Brand Finance, the IPL’s brand valuation was $2.01bn in 2009 before touching a peak of $4.13bn in 2010.
A spokesperson for Jain, who is based in London and is part of management board of the German bank, said that the “said par value transaction of 2009, the details of which are available in public, was done with full disclosure and in full compliance with the laws of the land”.
“We believe that the regulatory agencies will confirm our stand in due course,” the spokesperson added.
On July 31, 2014, the ED sent a letter to Jain seeking documents related to investments made in Mumbai Indians, a copy of the agreement executed, including the share purchase agreement, and details of his bank accounts in India and abroad.
In its letter, the agency also asked Jain to furnish details of money transferred to and from IndiaWin Sports, the mode of such transactions, and details of the bid made by Jain while acquiring a stake in Mumbai Indians. Jain has already provided the required details to ED, officials said.
“The Department is probing the issue of undervaluation of shares during stake sale by shareholders of various IPL franchisees, including Anshu Jain,” said a senior official.
A show-cause notice has not been issued and that will depend on the view the ED takes, the official added.
The ED has also appointed chartered accountancy firm, Chokshi & Chokshi LLP, to audit the value of equity shares of IPL franchisees to arrive at the correct valuation of sale of shares, said the official.
“Chokshi & Chokshi has already submitted a report on Kolkata Knight Riders Pvt Ltd,” said the official, but declined to divulge the contents of the report.
According to Reserve Bank of India (RBI) norms, a non-resident investor in an unlisted company is eligible to exit at a price as per any internationally accepted pricing methodology certified by a chartered accountant or a SEBI-registered merchant banker.
However, brand valuation, while a major factor, is only one among several factors such as financial health and future prospects impacting the valuation of an enterprise.
In this case, Jain is believed to have followed both the RBI norms on valuation besides SEBI rules which apply to listed firms and not to unlisted firms.
A major contention of some of the franchises is that sale of shares in the early days of the IPL, including that of Jain, happened at a time when there was little in terms of valuations to go by and when there was uncertainty surrounding the league.
Two people close to the development said that unlike some other franchises, Jain did not cash out to overseas investors but did so at par to the Indian founder promoters of Mumbai Indians, indicating that the transaction was done without any profit-boosting motive because he “is primarily a lover of the game”.
In the case of Kolkata Knight Riders, the ED is investigating two separate sale of shares by the company and its shareholders in 2009 and 2010 to Sea Island Investment Ltd, a Mauritius-based company.
Mumbai Indians and KKR did not respond to e-mails seeking comments on this issue.
Overall IPL brand valuation
2009 – $2.01bn
2010 – $4.13bn
2012 – $2.92bn
2013 – $3.03bn
Source: Brand Finance
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