Lenders complain to ministry about Deccan’s ‘dishonourable intentions’

Known for his ostentatious lifestyle,patrons and visitors at Hyderabad Race Club remember him more for his race horses that won him trophies all over the country and his collection of flamboyant cars including Rolls Royce Phantom,Porsche Cayenne S,Lamborghini,Maserati,Ferrari,Land Rover,Audi and Mercedes Benz. But Reddy has had to mortgage this and more,including the company’s printing presses and newsprint,to raise money over the last two years.

He is now struggling to keep his holding company DCHL afloat. A lender told The Indian Express that 12 of his cars including four Rolls Royce Phantoms,two Maseratis,two Ferraris and a Lamborghini carrying Hyderabad registration are parked at a lender’s farmhouse in Delhi. “The Delhi-based finance company has taken the cars since DCHL does not have money to repay its debt,” the lender alleged.

Several phone calls,text messages and mails to Venkattram Reddy for his response remained unanswered.

The debt raised by mortgaging personal assets must have been Reddy’s last recourse. What has puzzled lenders is how the company with a turnover of less than Rs 1,000 crore (Rs 976 crore in 2010-11 to be precise) can allegedly utilise as much as Rs 5,000 crore between March 31,2011 and June 30,2012,without any significant addition to assets. During this period,Deccan promoters — Venkattram Reddy,Vinayak Ravi Reddy and P K Iyer — have reduced the company from a net cash position of Rs 390 crore (cash plus fixed deposits less debt,as on March 31,2011) to a net debt position of Rs 4,300 crore (as on June 30,2012).

The financial trouble has prompted many to question the Reddys’ rich and flashy lifestyle. But those who know him well say that hasty and imprudent business diversification rather than his lifestyle caused the liquidity crisis. “He has a taste for expensive cars,luxury watches,race horses and suits. But I feel the indulgence is small compared to losses accumulated due to diversification into businesses such as IPL,aviation,lifestyle products,etc that Venkattram Reddy or his family had little knowledge or insight into,” a close friend said.

The Reddys registered spectacular growth when they concentrated only on newspapers but once they started diversifying,the business started crumbling. “The revenues from the newspaper were diverted,huge loans taken and no one strategised well to run the new businesses,’’ said a politician friend of the Reddys.

DCHL owns English newspapers Deccan Chronicle,Asian Age,Financial Chronicle,Telugu daily Andhra Bhoomi and three other smaller publications in Telugu. His family members firmly held the reins of Deccan Chronicle — his wife Manjula and their daughter Gayatri are features editors while his niece handles sales and marketing — and the publication did register spectacular growth not only in Andhra Pradesh but also in Tamil Nadu. Till 2003,Venkattram Reddy was content with his media business and his passion and love for race horses.

The family then acquired the Odyssey chain of bookstores and lifestyle products in 2003 which immediately ran into losses and they had to shut down many outlets. In 2006,DCHL launched Seiger Solutions and Papyrus Clubs,an online portal to enable students to publish their own newspapers and books.

Though his family had political roots,Venkattram Reddy alienated himself from politics after the Congress denied him Rajya Sabha nomination after he served the remaining two years of his father’s term as MP. “He felt that his uncle,former union minister T Subbirami Reddy,should have helped him with the RS nomination. But Subbirami himself got nominated after which Venkattram Reddy distanced himself from politics,’’ said a source.

Venkattram Reddy was close to late chief minister Y S Rajasekhara Reddy,but the bond was cemented with the rise of his son Y S Jaganmohan Reddy and he decided to support his party YSR

Congress.

DCHL has not published its financial statements for the year-ended March 31,2012. However,in a provisional balance sheet signed by its vice chairman Vinayak Ravi Reddy and provided to lenders,DCHL has indicated an aggregate debt of only Rs 685 crore. In fact,the company’s decision to change the financial year from 12 months ending March 31,2012 to 18 months ending September 30,2012 is being viewed as a strategy to delay revealing its actual debt position.

“The promoters have been deliberately concealing the actual indebtedness of the company by grossly understating the factual debt level of the company,” the group alleged in its letter to the ministry of corporate affairs. By borrowing much more than the Rs 1,000 crore authorised by the shareholders,the company has also violated Section 293 (1)(d) of the Companies Act. When contacted,Corporate Affairs Minister Veerappa Moily told The Indian Express,“We are seized of the matter. We are looking into it.”

“The estimated debt contracted by the promoters up to June 30,2012 is in excess of Rs 4,300 crore,” the lenders have noted. In fact,a senior private banker said that a group of lenders recently met at Axis Bank premises in Mumbai and tried to reconcile 40 bank accounts the company held with 28 different banks,but without any fruitful outcome. Several such joint lenders meetings have happened over the last two months. But banks find themselves in a state of “complete helplessness”,said one of the lenders.

Over a dozen-and-a-half banks have lent amounts ranging from Rs 50 crore to Rs 500 crore to the Deccan Chronicle group,said a banker. Much of this has been working capital loan,and bankers had little clue since Deccan Chronicles Holdings Ltd enjoyed the highest short-term credit rating of A1+ till July 2,2012,by rating agency CARE.

(With inputs from Shruti Srivastava in New Delhi)

Part II

India’s own Lehman: CARE downgrades Deccan Chronicles from highest rating A1+ to default grade D within weeks of re-affirmation