Empress City, a central Nagpur realty project on the land unlocked after the shutting down of an iconic 19th-century textile mill, is emerging as a bone of contention between the Tayal Group, promoters of the erstwhile Bank of Rajasthan, and its lenders. While KSL & Industries, the listed arm of Tayal Group, in its annual report, said Reward Real Estate, which owned the Empress City project, had ceased to be a subsidiary, lenders argued since it was a key part of the company, it could not be hived off without their consent.
Today, the Bombay High Court ordered KSL & Industries to share details of the divestment of stake in Reward Real Estate with bondholders. It also put on hold any further divestment of assets or subsidiaries by KSL without prior notice to the bondholders.
However, the company’s website and filings with the Registrar of Companies point to a slightly different story. According to the company’s balance sheet for 2009-10, filed with the Registrar of Companies, Reward had gross fixed assets of Rs 40 crore and inventories worth Rs 165 crore. According to KSL & Industries’ annual report for 2010-11, when Reward was still a subsidiary, its total assets stood at Rs 177 crore. Lenders say these inventories refer to residential and other properties being sold by the company.
According to the note on accounts, the company follows prudential norms while valuing inventories. Accordingly, “Finished goods are valued at the cost or the net realisable value, whichever is lower. Value of stock-in-process is determined considering the cost of material, labour and related overheads. Raw material and consumables are valued at the cost or the market value, whichever is lower.”
Lenders feel the project’s land value alone has skyrocketed over the years. The Tayals had bought Empress Mills for about Rs 35 crore eight years ago.
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In its annual report for 2010-11, KSL said, “The company’s flagship realty project, christened Empress City Nagpur, is progressing well and on its completion, it would have the potential to generate Rs 450 crore in revenue across three years. The complex, being built on a 10-hectare facility, would comprise residential complexes, five-star hotels, shopping malls, information technology parks, multiplexes, etc. The company has also undertaken realty projects at other locations.”
The company’s website states Reward Real Estate is developing realty projects in 15 centres, and the Empress Nagpur project is one of these. According to a bondholder, KSL had indicated it would receive cash flow of Rs 500 crore in Reward Real Estate as the sales began. “But when the cash flow actually came in, they have taken the company out of KSL. It appears they have sold it off to promoter-shareholders,” he said. Empress City had eight residential towers, with 50 apartments. Each of these had an area of 2,000-2,500 square feet. These were being sold at about Rs 4,000 per square feet.
Citing liquidity constraints faced by the textile industry due to the global slowdown, several Tayal Group entities, including KSL & Industries, are seeking corporate debt restructuring for loans worth Rs 2,800 crore. A consortium of 15 banks, including Punjab National Bank, UCO Bank and Union Bank of India, is considering the proposal.
Meanwhile, KSL’s bondholders had filed a winding-up petition with the Bombay High Court, alleging KSL had defaulted payment on foreign currency convertible bonds that were due in May.
| MARKET CAP OF TAYAL COS | |
| Rs crore | |
| Jaybharat Textiles | 3,619.37 |
| KSL & Industries | 597.51 |
| Asahi Industries | 210.49 |
| K-Lifestyle | 42.94 |
| Eskay K’n'IT (I) | 31.17 |
| Source: Capitaline | |
During construction of the Empress City project, KSL & Industries, which held 99.99 per cent in Reward, had raised loans from several lenders, including state-owned entities such as Indian Overseas Bank, Allahabad Bank and Housing and Urban Development Corporation. According to filings with the Registrar of Companies, these loans had created a charge of about Rs 200 crore on the assets of Reward. “The charge covers by way of security the property…held by KSL & Industries, a group company, for the due repayment of Rs 80 crore sanctioned to the company (Rs 40 crore of each bank) with all costs, charges, interest, penal interest, etc,” read a statement showing a charge on the assets of Reward Real Estate. The charges were created in 2007-08. However, it is unclear whether these loans are part of a debt restructuring proposed by the Tayal Group. Kamal Kishore Soni, chief regional manager, Indian Overseas Bank (Mumbai) declined to comment on the Tayal account, citing client confidentiality. Other lenders were unavailable for comments.
KSL did not give the details of Reward being hived off, except for a footnote in the annual report for 2011-12 to shareholders in the company’s annual general meeting last week. The footnote simply read, “Reward Real Estate, a wholly-owned subsidiary, has ceased to be a subsidiary.”
While the legality of this move is under question, experts feel there is clearly a governance issue. Lawyers said, typically, lenders had a clause in their agreements which prohibited the hiving-off of key subsidiaries. Manoj Kumar, vice-president, Corporate Professionals, said, “Being a listed firm, they should have been more transparent when converting a subsidiary holding key assets into a non-subsidiary.”
A Nagpur-based former Reward employee involved in the project said, “The Empress City project was a success. Anchor investors have come in and the shopping mall is operational for over a year now. People have started taking possession at the residential site, too.”
Located on the banks of Gandhi Sagar Lake in the heart of Nagpur, Empress has an interesting history. Set up in 1874 by Jamsetji Tata, it was named after Queen Victoria, who was given the title of ‘Empress of India’ around that time. It was the oldest and the largest composite textile mill in the country, when it succumbed to labour issues. According to reports, at its peak, it employed as many as 17,500 workers and was probably the largest industrial establishment in central India. Following a long period of sickness, in 1986, Maharashtra State Textile Corporation (MSTC) acquired the mill, after the Tatas decided to exit. However, it couldn’t turn the mill around, and in 2002, Empress stopped production. By then, MSTC decided to shut it down, auction all the mill properties and settle its liabilities, including workers’ dues. It was then that the Tayals stepped in.
In 2006, a KSL release stated, “The project will be implemented by Reward Real Estate Company, a wholly-owned subsidiary of KSL & Industries.” The project included other partners such as architect Hafeez Contractor and the Shapoorji Pallonji group. Initially, the project was expected to be completed by December 2007. It was also said the Taj Group would set up a five-star hotel here.
“The project comprises an information technology park, a 400-room five-star hotel, a shopping mall, multiplexes and 600 luxury residential apartments,” Saurabh Tayal, then the chairman and managing director of KSL, had said. Recently, Saurabh had resigned from the boards of both KSL and Reward. An email sent to Saurabh Tayal remained unanswered.
The Tayal Group, which owns listed companies such as Jayabharat Textiles, Eskay K‘n’IT and Asahi Industries, is controlled by Saurabh’s father, Pravin Kumar Tayal. The combined market capital of these entities stands at about Rs 4,500 crore. Though his personal holdings are minimal, Pravin Tayal is said to control the group through the holdings of family members, as well as other holding vehicles.
For someone ranked 28th in the Forbes list of the richest Indians in 2009, Pravin Tayal is simple and soft-spoken. He operates from a relatively non-descript corner room in an otherwise dingy office of the Raghuvanshi Mills compound. Raghuvanshi is one of the scores of mills-turned-realty goldmines in central Mumbai’s Lower Parel area. As the textile industry saw a structural decline through the 1980s and 1990s, many owners relied on the prime real estate the defunct mills were sitting on to bail them out.
The Tayals, however, went a step further, developing defunct mills owned by state-owned entities such as MSTC and the National Textile Corporation. By the mid-2000s, Tayals had acquired several mills from state-owned firms across Maharashtra. The group’s flagship company, KSL & Industries, acquired the Empress City project, the biggest of these state-owned mills, from MSTC in 2004-05. The investment was made through Reward Real Estate.