Anagram Finance, the Lalbhai group company, is expected to have a clean balance sheet before it merges with ICICI as per the terms of the deal worked out between the financial institution and the Lalbhais.
The finance major has, over the last few months, revamped its balance sheet to correct distortions that had crept up between June and December last year when it plunged from a positive net worth of Rs 126 crore to negative net worth of Rs 7 to 8 crore.
Using funds of Rs 125 crore lent by the Lalbhai family, Anagram is paying off nearly Rs 150 crore to fixed depositors. Another Rs 220 crore worth of NCDs is also expected to be redeemed.
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"It is for the first time in Indian corporate history that promoters have taken personal responsibility for the erosion of a company's net worth and are putting in personal funds to the tune of Rs 136 crore to make up for the loss," Darshan Mehta, CEO of the Lalbhai group company Options, told Business Standard.
Mehta had been roped in to clear the financial mess at Anagram and had negotiated the deal with ICICI. The Lalbhais and ICICI had signed an MoU in May this year under which Anagram will merge with ICICI. The proposed merger has already been cleared by the Gujarat and Bombay high courts. Clearance from the registrar of companies is expected within the next 10 days. The merger is effective from April 1, 1998.
Explaining the loss of net worth of the company Mehta said while there had been no malafide intentions, the main reasons for the loss of net worth of the company were a drop in portfolio quality, total lack of documentation, lack of proper software support, a focus on asset building without adequate support systems, and a lack of modern audits.
Besides the company's tax liabilities following the tough stand taken by the Income Tax department in cases of sale and lease back deals, was also taken into account while fixing the valuation of the company. The company had a very strong marketing team but lacked good sound finance people, Mehta explained.
"Besides there will always be a difference in the perspective of valuation on a ongoing concern and in the case of a valuation for a takeover," Mehta said. The company had 67 branches which had no e-mail link, and only the most rudimentary software.
Of the total business 80 percent was retail business while 20 per cent was corporate. The Rs 700 crore retail business was almost entirely car and truck finance, a business which has been doing badly, and while there is a second hand market for cars there is no parallel second hand truck market. The corporate financing was mostly done to strip depreciation, and there where various cases of the same asset being leased to more than one company.
The Lalbhai family has already brought in most of its committed Rs 125 crore into Anagram as debt. It will pump in Rs 11 crore later to buy out the remaining shareholders of Anagram. As per the MoU between Anagram and ICICI, which was cleared by the respective boards in May this year the Lalbhai family will be getting three shares of ICICI following the merger.
Of the other Anagram subsidiaries, the group proposes to run the broking house while the housing subsidiary which has a Rs 5 crore portfolio is slowly being wound up.
The capital markets outfit had never actually taken off while in the case of the asset management company the group has signed a dissolution agreement with the partners Wellington Asset Management, which has lost interest in India. The asset management company has a Rs 5 crore fund, and the company will run with this fund it such time as the tenure of the fund runs out.
Of the 400 strong workforce 151 are left and will be absorbed by ICICI. The company managing director Satish Nadkar is expected to resign following the merger.