The Tarapore Committee set up to look into the activities of Unit Trust of India has said that the value of the trust's holding in Himachal Futuristic Communication Ltd (HFCL) has eroded by Rs 962 crore for the year-ended June 2001.
The Committee's report said that as on June 30, 2001, the trust held over 10 per cent of HFCL equity at a closing cost of Rs 1,050 crore. The market value, however, stood at about Rs 88 crore indicating a depreciation of Rs 962 crore.
In response to a faxed questionnaire, HFCL, however, contested the Committee's findings. It said that UTI's investment in HFCL shares at any point of time was never more than Rs 100-120 crore including those bought from the company's primary market subscription and purchases in the secondary market.
More From This Section
The company said inter-scheme transfers by UTI could have happened in HFCL shares. "It would have meant profit of Rs 900 crore to UTI in one scheme and increasing the cost of other scheme to Rs 1,000 crore. The so-called loss of Rs 900 crore must have been calculated by ignoring this inter-scheme transfer," it said.
The committee seems to have overlooked this aspect of inter-scheme transfer, it added.
The committee, which scrutinised 19 investment decisions of UTI, found that UTI's investment in HFCL was imprudent. It recommended that the case be subjected to a thorough on-site audit before being remitted to an appropriate pre-investigative agency.
It has pointed out that UTI's equity research cell had recommended that the trust may subscribe to HFCL's private placement of shares only if the offer price was not more than Rs 1,050 per share. However, UTI's decision to invest Rs 100 crore in February 2000 through the private placement was not backed by any analysis of the price and the ERC report, it said.
The trust's executive committee did not examine the reasonableness of the investment vis-a-vis the portfolio already held. As on June 30, 1999, UTI held over 10 lakh shares, the average cost per share being about Rs 55.
The committee said that while UTI was offered only 1 lakh shares by HFCL for Rs 10.5 crore in the private placement deal, it subsequently acquired 5 lakh shares at a price ranging between Rs 1,321 and Rs 2,526 per share between February 25 and April 25 at a total cost of Rs 111 crore. It bought another 14 lakh shares at prices between Rs 1,178 and Rs 1,547 per share during July-September at a total cost of Rs 203 crore.
The Tarapore Committee has noted that in building up the HFCL portfolio, UTI did not follow any strategy aimed at risk management. Also, there did not seem to be any stipulation on cut loss limits in adverse circumstances, the report said.
The Tarapore committee has also said that UTI in its market operations chose to buy approximately the same number of shares while off-loading them to book profit. It also said, "It is not clear from the data made available whether this was influenced by broker-promoter relationship with UTI."
Relating to the Rs 50-crore investment HFCL's non-convertible debentures, the committee said the appraisal note leading to the investment lacked critical inputs on the justification, purpose and need for funds.
It was also not clear whether the then UTI chairman was empowered to sanction the investment. HFCL, in its response, said the loan was taken in the normal course of business and repayment has already started.