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Retail chain flames out in key shareholders’ spat

Retail chain flames out in key shareholders’ spat
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First Published: Sun, Feb 22 2009. 11 49 PM IST

Difficult time: Subhiksha’s managing director R. Subramanian. Harikrishna Katragadda / Mint
Difficult time: Subhiksha’s managing director R. Subramanian. Harikrishna Katragadda / Mint
Updated: Mon, Feb 23 2009. 09 57 AM IST
New Delhi: Even as discount store chain Subhiksha Trading Services Ltd fights for survival, an all-too-public spat has broken out between the company’s two largest shareholders over who is to blame for the state of affairs.
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On one side of the fight, which is being fought across the front pages of newspapers is promoter, managing director, and the single largest shareholder of the company, R. Subramanian. On the other is the second largest shareholder ICICI Venture Funds Management Co. Ltd, the most successful private equity firm in the country.
“It is natural that when things suddenly fall apart and unexpectedly in some form, there will be anguish and hindsight is the perfect science anyway. From our side, we respect ICICI Venture as a long standing supporter of Indian retail and Subhiksha and we are happy that we have generated tremendous value for them over the years,” Subramanian said on email.
Difficult time: Subhiksha’s managing director R. Subramanian. Harikrishna Katragadda / Mint
“We have no desire to blame anybody for the mess we are in and we have stated it was a failure to predict the changing credit market state and failure to derisk the balance sheet that did us in—much as it did to a Lehman in the US.”
Subramanian agreed that “differences do get exaggerated in times of stress”.
“We do not manage the media or attempt to manage the media—however we can’t but clarify the various queries which come and many of these are leaked by interested sources fishing in troubled waters,” Subramanian said. “In a way this is like the Indian Cricket team’s dressing room—when we are winning, the team spirit is good and, when we are losing, it is always a divided unit.”
ICICI Venture declined comment through its press relations agency.
The Subhiksha saga started around three weeks ago when Subramanian revealed in a note sent to the media that his business has “collapsed”. The chain, which ran around 1,600 stores until a few weeks ago—most have since been shuttered—seems to have grown too much too fast and has been facing significant cash issues for some time.
Mint had reported in late 2008 that the chain was having trouble paying suppliers and employees. As the economy slowed down further, and access to bank funds became tougher, the situation worsened—and prompted Subramanian’s letter. Since then, Subhiksha has been involved in working out a debt restructuring package with lenders.
On 13 February, Subramanian said ICICI Venture, that holds 23% in the firm (the managing director and his associates together own 59%), has “substantial rights of control over the company through the articles of the company, including the right to appoint majority of the board of the company”.
Two days later, the Business Standard financial daily, citing unnamed government sources, said ICICI Venture had written a letter to the Chennai office of Registrar of Companies (RoC) asking for an independent auditor to scrutinize Subhiksha’s accounts.
This was followed by a rebuttal from Subramanian, who said: “We confirm that we are not on notice of any such proceeding in this regard and, as under law any such proceeding would have been notified to us, the said report clearly is baseless. We reiterate that we are not a party to any proceeding before the Company Judge of the Madras high court wherein ICICI Venture has filed to seek independent audit of our books. The status of ICICI Venture as our controlling shareholder is known to all in any event.”
Then, on 18 February, the Business Line newspaper, without attributing the information to anyone, reported ICICI Venture along with PremjiInvest, a personal investment vehicle for Azim Premji of Wipro Ltd, that holds 10% in the Chennai retailer, had filed a petition in Madras high court objecting to the merger of Subhiksha with Blue Green Constructions and Investment Ltd, a listed company that the retailer had acquired last year as part of an effort to list itself on the stock exchanges (private companies often acquire a listed firm as a means to achieve this).
The retailer, a day earlier, had said, “Subhiksha has obtained all approvals including written consent from PremjiInvest and ICICI Venture for the merger and the proposal was approved unanimously at the shareholder meeting of 31 October 2008.”
On Friday, a note sent by Subhiksha’s public relations firm questioned the rationale of ICICI Venture’s decision to sell a 10% stake in the retailer, for Rs230 crore, to PremjiInvest, at a time when the company badly needed some capital infusion.
“The company (Subhiksha) desperately needed the capital and we were informed that PremjiInvest preference was to invest into the company as they felt that the company needed capital especially as the IPO (initial public offering) was not happening and there was no reduction in growth targets,” the note, which attributed the comments to Subramanian, said. “Despite the company needing the capital and PremjiInvest being willing (and preferring) to invest into the company, the deal was set up as a sell out by ICICI Venture which meant no money came to the company.”
Meanwhile, after some people raised concern over the fate of the retailer’s estimated 15,000 employees, who had not been paid their salaries for the past seven to eight months, and a group of employees filed an application with the Chennai provident fund commissioner earlier this month, the latter ruled on 20 February that Subramanian should immediately pay the entire due, which, according to a PTI report, was less than Rs2 crore.
Analysts said ICICI Venture couldn’t wash its hands of the affair.
A Mumbai analyst, who did not wish to be identified, said while Subramanian, a first generation entrepreneur may have gotten ahead of himself, ICICI Venture, a seasoned fund managed by experienced professionals, should have “flashed the right signals at the right time”.
“ICICI Venture was also in control (of the board) so they must be knowing everything whatever is happening in the company,” said another retail analyst with a Mumbai-based brokerage, who too did not wish to be identified. “Why didn’t they (ICICI Venture) immediately intervene?”
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First Published: Sun, Feb 22 2009. 11 49 PM IST