‘Collateral covers less than half of Deccan Chronicle’s loans’

Hyderabad: Recovering loans from debt-ridden Deccan Chronicle Holdings Ltd (DCHL) promises to be an arduous task for creditors, who have discovered that the value of the collateral pledged by the newspaper publisher covers less than half the money it owes them.

add_main_imageA banker who has initiated the legal process for recovery of loans from the Hyderabad-based company by approaching the debt recovery tribunal said, “The total amount of hard collateral is just ₹ 1,700 crore” to cover combined loans to the tune of ₹ 4,000 crore that DCHL has taken. The banker didn’t want to be named.

In accepting collateral from a customer, banks do take on the risk of this dropping in value as market conditions change. In the case of DCHL, however, other factors were at play. Bankers say the value of assets pledged was insufficient in the first place; Canara Bank has also accused DCHL’s promoters of repledging with other lenders assets it had already offered it as collateral.NextMAds

Creditors of the company include ICICI Bank Ltd ( ₹ 490 crore), Axis Bank Ltd ( ₹ 400 crore), Canara Bank ( ₹ 347 crore), IDBI Bank Ltd ( ₹ 250 crore) Andhra Bank ( ₹ 200 crore), Yes Bank Ltd ( ₹ 194 crore), IDFC Ltd ( ₹ 100 crore), Corporation Bank ( ₹ 100 crore), IndusInd Bank Ltd ( ₹ 100 crore), Religare Finvest Ltd ( ₹ 100 crore), Kotak Mahindra Bank Ltd ( ₹ 100 crore), Ratnakar Bank Ltd ( ₹ 50 crore) and State Bank of Hyderabad ( ₹ 50 crore), as per publicly available information.

Some creditors have categorized loans to DCHL as non-performing assets (NPAs) and started proceedings to recover the money.

Around 18 banks with exposure to DCHL have together requested the ministry of corporate affairs to look into DCHL’s books in a much more “detailed manner” to find out how the company’s debt ballooned fourfold in the space of a year to 15 months, said the banker cited above.

“What is really required here is not so much about what banks are trying to do, but to find out what really happened,” said the banker. “How can, in such a 12-15 month period, somebody’s debt level go from below ₹ 1,000 crore to close to about ₹ 4,000 crore.”

DCHL, whose troubles surfaced in the second half of last year, has been battling the worst financial woes to confront an Indian publisher in many years. The first hint of trouble at the publisher, which traces its origins back to 1938, was a 25 July announcement to BSE Ltd by the company that its managing director N. Krishnan had resigned and would be leaving the company effective 29 July.

Analysts have linked the rapid and unforeseen decline in the fortunes of DCHL to debt-funded diversification that included the acquisition of a chain of book stores, the purchase of the Indian Premier League’s Hyderabad franchise Deccan Chargers (since terminated by the cricket board) and a stillborn aviation venture.sixthMAds

DCHL shares have tumbled 85% since 25 July, when Krishnan’s resignation was announced. On Wednesday, the shares fell 2.87% to close at ₹ 3.72 each on BSE, on a day the benchmark Sensex rose 0.57% to 19,252.61 points.

Another executive at a mid-sized public sector bank, speaking on condition of anonymity, said that the value of the collateral the lender had was inadequate to cover its exposure to DCHL. The bank has classified the loan as an NPA and initiated a legal process for loan recovery, this person added.

On paper, the lender is fully secured, but in reality the collateral is not enough to cover the loan amount, he said.

Attempts to reach DCHL chairman T. Venkattram Reddy and managing director P.K. Iyer on company phones failed. An email sent to Reddy on Sunday seeking comment remained unanswered.

HT Media Ltd, publisher of Mint and Hindustan Times, competes with DCHL in some markets.

On 22 February, DCHL said its board approved a proposal to arrive at a compromise with its lenders in line with provisions of the Companies Act. The company told stock exchanges that the compromise formula could pave the way for restructuring DCHL in order to pay debts amounting to ₹ 3,987.50 crore as of 30 September 2012.

DCHL’s board passed a resolution on 7 September to restructure the company’s debt in an application to the corporate debt restructuring cell.

Subsequently, Canara Bank commissioned audit firm Deloitte Touche Tohmatsu to conduct a forensic audit of the company’s finance. A forensic audit is conducted to gather evidence that can be used in court proceedings in the case of fraud, embezzlement or other wrongdoing. The report has not been released.

Bangalore-based Canara Bank on 12 December moved the debt recovery tribunal, saying DCHL had re-mortgaged properties pledged with it to other banks, including ICICI Bank and Axis Bank.

T.K. Bajaj, general manager of prime corporate credit wing at Canara Bank, who is overseeing the forensic audit report, declined to comment.

IDBI Bank on 27 February invited bids from interested parties to transfer its rights on the trademarks of DCHL’s publications, Deccan Chronicle, Financial Chronicle, The Asian Age and Andhra Bhoomi Telugu daily, The Financial Express reported on Monday.

“Due to the failure on the part of DCHL to repay the financial assistance provided to it, IDBI Bank has decided to enforce the security by transferring, to the highest bidder, its rights/interest on the trademarks for a consideration,” IDBI Bank said in a notice, fixing 11 March as the last date for submission of bids.

Still, there is need for a “thorough investigation” to find out whether there had been any “systemic lapse” in lending practices or if the creditors were taken for a ride by the company, said Satish Kantheti, head of the equity research division at Hyderabad-based brokerage house Zen Securities Ltd.

“There is some cause for discomfort, but I wouldn’t call it a systemic failure,” said Rajesh Chakrabarti, clinical associate professor of public policy and executive director of the Bharti Institute of Public Policy at the Indian School of Business, Mohali. “Banks should be a little more cautious.”

Banks typically try to figure out how volatile is the price of the collateral being pledged before approving a loan, said Chakrabarti.

He explained that banks in general are averse to lending against shares, and when it comes to real estate (as is the case with DCHL), they usually lend up to 60% of the property value. “So even if the price falls below 40%, they are safe,” Chakrabarti said.

DCHL obtained loans from banks by mortgaging real estate in locations, including Hyderabad, Secunderabad, Visakhapatnam and Chennai.

A few lenders have invoked promoters’ shares pledged as collateral after they failed to repay loans, leading to the shareholding of the promoters—chairman Venkattram Reddy, vice-chairman T. Vinayak Ravi Reddy and managing director Iyer—falling from 73.83% as of June 2012 to 32.66% at the end of the December quarter.

The financially troubled publisher of Deccan Chronicle, Financial Chronicle and The Asian Age newspapers and the Telugu daily Andhra Bhoomi has been dragged to courts by various financial institutions such as IFCI Ltd, Jammu and Kashmir Bank Ltd, Axis Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, Tata Capital Ltd, PVP Capital Ltd, National Pension System Trust, and Royal Sundaram Alliance Insurance Co. Ltd.

Besides these institutions, Hong Kong-based newsprint supplier Adonis Ltd and Chennai-based print trader Photon Infotech Pvt. Ltd have also moved the Andhra Pradesh high court demanding payment of arrears.

According to DCHL’s September quarter earnings statement, the firm had long-term borrowings of ₹ 147.20 crore and short-term borrowings amounting to ₹ 3,755.70 crore. Its total liabilities, both current and non-current, amounted to ₹ 4,207.54 crore.

The company posted a loss of ₹ 100.05 crore for the quarter ended 30 September; on a sequential basis, DCHL narrowed its loss from ₹ 166.24 crore in the June quarter.