Even as it finalised a deal to sell its oil assets in Mozambique to ONGC Videsh Ltd and Oil India Ltd in 2013, the Videocon Group sought to play down its debt exposure on paper and did not document inter-group loans provided by its flagship firm Videocon Industries Ltd to its step-down subsidiary Videocon Mozambique Rovuma 1 Ltd (VMRL) — despite red flags on regulatory compliance raised by offshore legal firm Appleby.
Appleby records show that Videocon was “hesitant to refer to the secured amount being US$880m or $856m” while upsizing a loan from the Standard Chartered Bank (SCB) in June 2013 and the “parties agreed in principle that they will refer to the current outstanding ($306m) plus interests, costs etc”.
Records show that the group insisted that loans provided by Videocon Industries Ltd’s subsidiary Videocon Mauritius Energy Ltd to its subsidiary VMRL would “only be evidenced by book entries (the loan is essentially being transferred from one intercompany loan provider to Videocon Mauritius Energy Ltd and the books will reflect this) and that no formal loan document will be available.”
Appleby, however, cautioned that “the above practice by a Mauritian entity is not good practice and may give rise to transactions that ‘lack substance’ from a Mauritius corporate, tax and accounting perspective which may create issues for the company vis a vis the regulators and other local authorities alike in case the above practice is queried”.
Accordingly, Appleby advised that Videocon should document any shareholder loan “not only as best practice but more importantly to ensure it is compliant with applicable laws”.
In response, Singapore’s Baker & McKenzie.Wong & Leow, a member firm of Baker & McKenzie International, wrote on behalf of the bank, which was to secure the loan: “We are discussing the VMRL loan documentation with Videocon — as a minimum we are requesting that VMRL provide a promissory note evidencing the debt.”
Under a 2010 master agreement between Venus Corporation Limited, a Videocon subsidiary incorporated in Cayman Islands, and SCB as the facility hedging bank, another Cayman subsidiary Videocon Hydrocarbon Holdings Limited (VHHL) signed an $800 million facility agreement in March 2011 by pledging, among other securities, the shares of VMRL, show Appleby records.
On December 28, 2012, VHHL sold the VMRL shares for an “unrealised profit” of $2141.15 million to its wholly owned subsidiary VMEL and pledged the shares of VMEL to SCB. Between March 2011 and May 2013, the VHHL facility agreement was amended and upsized at least eight times. Subsequently, Videocon sought to amend the fixed and floating charges over the pledged shares of VMRL to secure shareholder loans granted by VMEL to VMRL.
On 17 June, 2013, Baker & McKenzie.Wong & Leow informed Appleby in an email that SCB was discussing a proposal to “potentially” extend the maturity date for the SCB-VHHL facility from June 28 to September 30 that year.
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“There may be an upsize of the Facility for the Mozambique cash calls (as was the case with the previous US$56 million upsize) — this has not been confirmed yet and SCB will come back on this,” the email stated.
On June 25, 2013, Videocon inked the deal to sell the entire stake held in Videocon Mozambique Rovuma 1 Ltd by VHHL through its wholly-owned subsidiary VMEL to ONGC Videsh Ltd and Oil India Ltd.
In December 2008, Videocon acquired 10% participating interest in Rovuma Offshore Area 1 Block in Mozambique from Anadarko Petroleum Corporation, USA, through BVI-incorporated VMRL (formerly Videocon Energy Resources Ltd).
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Videocon’s board had approved splitting and selling its oil and gas assets in August 2012. Standard Chartered Plc was appointed an advisor for the sale, which was wrapped up with the payment of $2.475 billion in January 2014.
Incorporated in Cayman Islands in 2005, Venus Corporation Ltd (VCL) was a wholly owned subsidiary of Videocon Industries Ltd (VIL) till November 2009 after which VIL retained 19% interest in VCL.
Videocon Oil Ventures Ltd is the sole shareholder of VHHL, a Cayman company set up in 2009. According to its website, VHHL through its various subsidiaries and affiliates holds interest in various international oil and gas concessions in Brazil, Indonesia and East Timor.
Videocon Group’s chairman Venugopal N Dhoot and director Anirudh V Dhoot did not respond to emails, messages and phone calls from The Indian Express seeking comment.