Yes, your actual debt picture is understated, but we don’t mean you did it deliberately, is Credit Suisse’s clarification to its earlier report on JSW Steel, after the latter’s strong response.
On Friday, the global financial services company had blamed JSW Steel for understating its debt by Rs 11,900 crore. On the net debt as on March 31, it had said, “We believe it was understated on three counts: First, acceptances of Rs 7,500 crore (up from Rs 6800 crore in FY11) are effectively debt; second, securitised receivables of Rs 3,100 crore (up from Rs 2,600 crore); and third, Rs 1,200 crore from the fall in INR (the rupee).”
In a revised note on Monday, Credit Suisse has said, “We would like to clarify that we have no reason to suspect any such thing (deliberate under-reporting) and it is far from the intent of our analysis. The phrase “debt effectively higher” better describes what we sought to put across.”
Adding: “In our view, JSW’s treatment of acceptances, its securitisation of receivables, and its mark-to-market on un-hedged foreign currency liabilities is proper and as per accounting norms and normal business practice. Furthermore, there has been no change in these policies this year; the changes we flagged were incremental.”
| CREDIT SUISSE ON JSW STEEL | |
| On July 6 “We believe it (sic) was understated on three counts: First, acceptances of Rs 7,500 cr (up from Rs 6,800 cr in FY11) are effectively debt; second, securitised receivables of Rs 3,100 cr (up from Rs 2,600 cr); and third Rs 1,200 cr from the fall in the rupee” | |
“We would like to clarify that we have no reason to suspect any such thing, and it is far from the intent of our analysis. The phrase “debt effectively higher” better describes what we sought to put across”
More From This Section
JSW has issued an advertisement on Monday to its investors, saying, “The management at JSW Steel strongly disagrees with the published report. We at JSW Steel continuously endeavour to follow the highest standards of corporate governance.”
In its revised explanations on the stated three issues, Credit Suisse said the acceptances were in line with accounting norms and their treatment on the JSW books was proper. On securitisation, the research firm said it was a common business practice employed by companies for cash management. It said, “This was also explicitly stated in our (earlier) note, (that) ‘While this by itself is a perfectly acceptable practice, when comparing net debt across companies, we should be adjusting for such metrics’.”
And: “The mark-to-market on un-hedged foreign currency liabilities can only be done once the USDINR (dollar to rupee exchange rate) changes and is, by definition, as of date. JSW could not have valued the debt at any USDINR rate other than the one prevailing on March 31. What we flagged was that when looking at valuation levels today, such un-hedged liabilities would be higher in rupee terms, owing to the decline in the currency.”
Seshagiri Rao, joint managing director and group chief financial officer of JSW, had said on Friday, “The classification of assets and liabilities in its financial statements is not only in compliance with Indian accounting regulations but also consistent with the practice being followed by the company for several years. The company strongly objects to these misleading statements. These financial statements have been audited by a reputed firm of chartered accountants.”