1900-cr question mark over Kribhco’s mega deal

The deal was struck in early November 2005 when Kribhco—a co-operative with 67 per cent government stake—entered into a 60-40 Joint Venture Agreement (JVA) with Shyam Basic Infrastructure, part of the Shyam Telecom clutch of companies.

On November 29, the CVC sent an advisory to the Ministry of Fertilizers, following which the Ministry asked for a detailed report on the deal.

Nonetheless, Kribhco has gone ahead with the acquisition and has already taken over management control of the ammonia-urea unit. Kribhco-Shyam has to pay Rs 700 crore to Oswal Chemicals & Fertilizers Ltd (OCFL) and Kribhco officials say the rest of the financing is being arranged through the financial institution (FI) route.

But interestingly, though Kribhco’s first instalment of Rs 66 crore was paid to OCFL November 2005, the co-operative now says it has, a few days ago, factored in repayment of the estimated Rs 200-crore dues that Oswal owes the Government.

Kribhco’s Director Finance, B D Sinha, explains, ‘‘There are vested interests working against the deal which was actually signed in a very calculated manner. We will now be holding back Rs 200 crore payment till all Government dues are settled.’’

After complaints of an over-priced deal reached Satarkta Bhavan, the CVC sent the Ministry an advisory which stated, ‘‘(It is) alleged that the 10-year-old fertilizer plant which is being acquired approximately at a value of Rs 1,900 crore is highly over-valued. The value has reportedly been arrived at by Kribhco on the basis of inflated profitability figures furnished by Oswal.’’

The advisory goes on to add: ‘‘…It is alleged that no independent evaluators were appointed to carry out due diligence and now ante-dated documents showing due diligence are being created to validate the deal.’’

Speaking to The Indian Express, Central Vigilance Commissioner P Shankar said that its intervention was not aimed at stalling the Kribhco-Oswal deal but at ensuring all parties were ‘‘doubly careful’’ while finalizing it. ‘‘Our advisory was meant to be an alert so that such a big deal does through all stages of scrutiny. Maybe, at a later stage we also pick it up for a technical examination.’’

Despite such assurances, there are several factors that make the Kribhco-OCFL deal out to be one signed in a hurried, questionable manner. They are:

• Kribhco, despite having a 60 per cent stake in the JVA, did not appoint any independent evaluators for the acquisition. The valuation was done by Edelweiss, on behalf of its JVA partner, Shyam.

• The Edelweiss valuation report, accessed by The Indian Express, was submitted on November 3, and just two days later, on November 5, the JVA was signed. Interestingly, the evaluators stated in their report that Shyam’s collaboration with Kribhco would be ‘‘beneficial.’’

• The circulated agenda shows that the three Government Directors on Kribhco’s board had, in fact, raised the issue of Government approval but were told that the ‘‘settled position was that no Government approval was required.’’

• The recovery of Government dues, to the tune of Rs 200 crore, was factored into the deal, weeks after the deal was signed and after some Rs 400 crore had already been paid by Kribhco-Shyam to OCFL.

When asked ut these issues, Kribhco’s Sinha alleges that it is actually ‘‘sibling rivalry’’ which is working against the interests of the deal. ‘‘A few months ago, Kribhco lost out narrowly to IFFCO for acquiring OCFL’s phosphate unit in Paradeep,’’ says Sinha. ‘‘Now it is one co-operative working against the interests of the other.’’

By way of explanation, Kribhco has submitted a detailed report on the acquisition to the Ministry. The report, accessed by The Indian Express states, ‘‘As time was the essence for this acquisition, Kribhco gave assurance to M/S Shyam to proceed independently and sign Agreement to Sell with OCFL and pay an advance of Rs 50 crore along with suitable clause to legally bind OCFL.

A copy of this agreement has been obtained and it is in the same line as the one signed between IFFCO and OCFL in respect of the Paradeep unit.’’

In their circulated agenda, Kribhco has also rationalized its move to involve Shyam and then acquire the fertilizer plant.

Kribhco, thus, informed its Directors via mail that, ‘‘In the month of August/September 2005 Kribhco was negotiating with OCFL to acquire their Paradeep unit in Orissa. The experience of directly negotiating with them did not prove to be fruitful. Keeping this past experience in mind, Kribhco was not interested for any direct negotiation with OCFL for acquiring the Shahjahanpur unit.’’