More lenders object to Subhiksha move

The claim was first made months ago by ICICI Venture Funds Management Co., the largest investor in the retail chain that grew too fast, took on too much debt, shut its roughly 1,600 stores, and is trying to work out a corporate debt restructuring, or CDR, package with the lenders.

Stonewalling: R. Subramanian. Harikrishna Katragadda / Mint

A consortium of around a dozen banks, among the largest lenders to Subhiksha with a combined debt exposure of around Rs600 crore, has hired audit and consulting firm Ernst and Young to look at the retailer’s books. The audit firm declined to comment on the issue.

The consortium, which includes ICICI Bank Ltd, HDFC Bank Ltd and Yes Bank Ltd, is working on the CDR package that will infuse fresh funds into the company to help it get back on its feet. The consortium requires financial details, but two executives from two of these banks and another senior executive from a bank, which is a lender to the retain chain, but not part of the consortium, said Subhiksha is not sharing its accounts and other relevant details with the new auditor.

The three executives did not want to be identified because they are not authorized to speak to the media. They did not want their organizations to be identified either.

Earlier, ICICI Venture, which has a 23% stake in Subhiksha, had made similar allegations when it said Subhiksha’s management had not released audited financial accounts after June 2007 to its investors and the firm’s board.

The erstwhile Subhiksha board, most of whose members have resigned in the past five-six months, had appointed audit firm KPMG International to independently audit the firms’s books, but KPMG could not make headway because of alleged non-cooperation by Subhiksha. “In the absence of cooperation from the management, they (KPMG auditors) were unable to conduct the independent review mandated by the board," ICICI Venture had said in a press statement in February.

It had even approached the Registrar of Companies, which oversees the functioning of firms in India, asking it to appoint an independent auditor to look into Subiksha’s accounts, but there has been no development on this front.

Once the country’s largest chain of discount supermarkets and one of the most aggressive in the fledgling organized retail market, Subhiksha halted its operation earlier this year citing tough economic conditions and lack of cash. Subhiksha’s founder and managing director R. Subramanian had said in a January press statement that his company was facing a major financial crunch and was unable to pay its staff salaries, rent and money owed to vendors.

Subramanian had said that a CDR was being worked on and that he expected it to be finalized by April. In the email response, sent Monday, he said it would be finalized by July.

The lenders, however, claim the company, which is mainly controlled by Subramanian, is not allowing Ernst and Young to review its financial details. “Subramanian is not cooperating," said one of the two senior executives mentioned in the first instance. “The company is not even sharing its balance sheet. We are in the dark."

The other executive said Subhiksha’s indifferent stand is putting off many of the lenders. In his Monday email, Subramanian said: “We are unable to comment on any queries herein as we are bound by confidentiality clauses."

Earlier, while staying the appointment of an official liquidator in a winding-up petition filed by Kotak Mahindra Bank to recover Rs40 crore from the retailer, the Madras high court had asked Subhiksha to furnish its financial details by 20 May.

Kotak Mahindra has preferred not to take the CDR route and has instead approached the court.

rasul.b@livemint.com

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