Road from Triple A to Multiple defaults

Six months later in June 1996, a Rs 135-crore issue of shares was made 8212; amid investor allegations that the Parasrampurias spent crores to ramp up the share price ahead of the issue 8212; but it simply collapsed. ICICI, its subsidiary I-Sec and the Securities and Exchange Board of India actually fought an investor group that went to the Allahabad High Court alleging false and misleading information in the prospectus.

Less than three months later, the banks did an about turn and froze the working capital of the company. 8216;8216;I hold no brief for the promoters, I think they were involved in very murky dealings, but what does such action say about the quality of the appraisals?8217;8217; asks a top investment banker familiar with the case.

8216;8216;This is all easy to say,8217;8217; counters an ICICI source, but this happened frankly because money was taken out to boost share prices.8217;8217; He backs the allegation by the fact that equipment worth crores meant for the project is lying unopened to this day at a customs warehouse, duty unpaid.

If the appraisal was faulty, it is not the main reason for Parasrampurias8217; defaults 8212;they still live well and hold thousands of acres 8212; but it is symptomatic of a role that the banks themselves have played in India8217;s great corporate default.

After the IPO collapse, the Parasrampurias unwound a familiar litany of declaring their two main firms 8212; Parasrampuria Synthetics and Parasrampuria Industries 8212; sick. Today, as creditors grow stronger, they say that their three plants are up and running, that all they need is for their creditors to stand by them.

But when the Express visited Alwar, at least one plant is in the doldrums see page 9. Again, the Parasrampurias lay the blame at the doors of their creditors. 8216;8216;It is the high cost of the highly inflated debt structure that is making it impossible for us to pay back the debt,8217;8217; a company statement says.

They omit to mention one fact: that they agreed to the interest rates they now carp about. In the muddied world of multi-crore loan defaults, overambitious and often unscrupulous promoters, and crushed dreams 8212;mainly of innocent investors and sacked workers 8212; handling today8217;s situation is largely all about shadow boxing.

The Parasrampurias seem particularly good at that, they have good relations with some creditors, whom they pay often enough. Others like nemesis ICICI got nothing for five years. Only now, with the threat of the new law allowing creditors to freely seize assets hanging over them, have they been coughing up Rs 70 lakh per month since September.

HOW THEY GOT THE MONEY

In their glory days of triple A credit ratings and mega dreams, the Parasrampurias raised more than Rs 1,500 crore from their clutch of bankers, and directly through retail investors in the fixed deposits and plantation companies they floated.

Although Parasrampuria Synthetics has been around since 1982 and started commercial production only in 1986, its expansion plans were propelled by the IPO mania of 1992-95. It was an era that promised easy money from investors, rounded off with a package of loans, underwriting and investment banking and trusteeship services offered by reckless banks and financial institutions. By the time the great crash embroiled the Parasrampurias in feuds with their bankers, irregularities started to show up. Expansion plans were shelved and loan defaults began. The lenders then appointed a concurrent auditor to unravel what they said was a maze of spurious transactions between group companies. They also decided to recall loans.

Today, despite the now-familiar scurrying to the BIFR, the Parasrampurias are far from bankrupt. Their plants, once closed, are running well.

For their part, the Parasrampurias would not themselves comment on the situation but in a faxed response laid much of the blame firmly at the doors of their creditors: 8216;8216;We strongly feel that instead of pulling their hands off at the most critical juncture, FIs should engage in rescuing assets, especially when the promoters/workers are displaying complete commitment.8217;8217;

This draws an indignant response from their creditors. 8216;8216;This is ridiculous,8217;8217; says one prominent bank spokesman. 8216;8216;If I commit Rs 10 crore to you, and you don8217;t pay, and then you say give me Rs 10 crore more, why should I hand out more money?8217;8217; The Parasrampurias make no bones about the fact that they have been paying some creditors and not others. 8216;8216;Even before this Bill was to become a law, we have been paying those creditors who have supported us in our most critical times,8217;8217; says a company statement.

This astute judgement was first used against ICICI and other creditors they fell out with when their loans were recalled.

HOW THEY GOT AWAY

PSL, which had shown impressive results during its rights issue in December 1995, suddenly claimed that it was a sick company with a negative net worth by the end of 1996. Lenders allege it simply changed its accounting methodology, increased depreciation, created fictitious lessors and showed it had turned sick. The company has repeatedly denied these allegations, contending that lenders were informed about these losses and its transactions with sister companies.

Then the Industrial Development Bank of India IDBI, which was appointed as an operating agency by the BIFR said in its report that PSL had shown an artificial erosion of net worth. But the BIFR declared it a sick company.

ICICI then fought the company in various courts, filing an appeal with the Delhi High Court and a recovery suit in the Bombay High Court. It all turned ugly with allegations and counter allegations.

ICICI8217;s efforts to bypass the BIFR were unsuccessful. The Bombay High Court dismissed its suit because its case was pending before the BIFR. ICICI then approached the Supreme Court, but that too was stayed and sent back to the BIFR.

Success came finally in the BIFR8217;s Appeals Authority, which said such court delays were not only against the spirit of the law but detrimental to both a company and its creditors. The Authority allowed the sale of assets to repay institutions and also declared the PSL was not a sick company, that its accounts for 1996 were fictitious.

But PSL approached the BIFR again with another set of bad results in 1999-2000. The case hasn8217;t yet been decided. At one stage, even the labour union of PSL appeared before the appellate authority to prevent institutions from recovering their loans. PSL too filed suits in the Madhya Pradesh High Court challenging the power of the Sick Industrial Companies Act.

Seven other banks led by Canara Bank had also moved BIFR to recover their dues but they too were trapped in this web of litigation. 8216;8216;They have dragged us to courts all across the country,8217;8217; sighs one banker.

With all the plants operating, the lenders say the BIFR orders have only allowed it not to repay loans and divert money. Parasrampuria Industries also tried for BIFR shelter in 1999-2000, but its application was rejected. The BIFR said its accounts were fudged to show lower profits.

Hundreds of investors who lost heavily after investing in the Parasrampurias8217; plantation schemes are now managing to recover some money. It could have something to do with the fact that some owners of other defunct plantations are in jail.

With Ritu Sarin 038; George Mathew