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MUMBAI: The Rs 398-crore investment by Mauritius-based DH Renewables in Deepak Kochhar’s NuPower Renewables for a 55% stake appears to have been made at a valuation that was generous relative to its financials, based on an examination of Ministry of Corporate Affairs (MCA) records.
That compares with Kochhar’s Rs 9-crore investment and Rs 64 crore by Supreme Energy for a 43% stake.
NuPower Renewables is central to the quid pro quo allegations over loans given by ICICI Bank, which is headed by Deepak Kochhar’s wife Chanda Kochhar, to Venugopal Dhoot’s Videocon group. Dhoot’s Supreme Energy gave a Rs 64-crore loan to NuPower in 2010, which was converted to equity between 2015 and 2017.
Apart from inquiries that the Central Bureau of Investigation (CBI) is making, the income-tax department has sought details of the investments made by Mauritius companies First Land and DH Renewables in NuPower.
DH Renewables invested Rs 398 crore for a 55% stake as per MCA records until March 2017, valuing NuPower at around Rs 700 crore, making it the largest stakeholder.
It also appears to have taken over the investment of First Land, which had made the original Rs 398-crore investment. The corresponding preference shares reflect as owned by DH Renewables in FY15. After this investment of First Land becomes zero. Deepak Kochhar and his Pinnacle Energy trust held 43.31%, having paid Rs 9 crore for the stake after share transfers among various entities, including Supreme Energy.
To be sure, the valuation at the time of the Mauritius investment had EY’s stamp of approval as did subsequent audits by KPMG. DH Renewables received equity by way of conversion of preference shares at Rs 2,000 each for 500,000 equity shares, while the remaining stake was for Rs 1,161 apiece. Debentures worth Rs 7.1 crore issued to Deepak Kochhar were converted at Rs 1,166 a share.
In response to ET’s queries, a KPMG spokesperson said: “BSR Co are currently the auditors of the two firms. The firm (BSR) has a well-defined process to ensure there are no conflicts of interest; this is in accordance with the highest quality and ethical standards that we follow. We respect the confidentiality arrangements with our client and as a policy do not comment on client specific matters.”
Kochhar and EY didn’t respond to queries. Kochhar and Dhoot have denied any wrongdoing and ICICI Bank has said it stands by its CEO.
Between April 2012 and March 2017, Nu-Power made steadily widening losses although revenue rose almost fourfold in the year to March 2013. The company also had a spike in ad hoc or miscellaneous expenses. By definition, any single expense in this category cannot exceed 1% of revenue. In FY16, the company recorded Rs 78 crore in such expenses with revenue of `160 crore and a loss of Rs 100 crore.
Supreme Energy accounted for NuPower as its subsidiary in FY11when Venugopal Dhoot also transferred 99% of equity in the firm to director Mahesh Pungalia, also a director in NuPower. The equity capital of Supreme Energy was Rs 1 lakh and it had no other notable staff to pay, as per MCA filings.
As of FY17, the equity holding of Supreme Energy has been held by the Pinnacle Energy trust managed by Deepak Kochhar since 2013. Since 2014, Kochhar has received annual remuneration of Rs 3.5 crore in his managerial capacity at NuPower.
BSR Co., part of the KPMG India network, was auditor of ICICI Bank and Nu-Power Renewables and could be asked to join the CBI inquiry, people with knowledge of the matter said. SR Batliboi, a network firm of EY India, became NuPower’s auditor this year in line with audit rotation regulations.
The EY Merchant Banking Services unit had valued the company at Rs 1,092 crore on March 31, 2014. Arvind Gupta, the investor who had first raised questions about the ICICI-Videocon loan in 2016, had also questioned the auditor’s role in the NuPower valuation.
EY based its estimate on enterprise value and not equity value, said a person with knowledge of the matter. The first is the total value of the company including all debts obligations, excluding cash and cash equivalents. Equity value doesn’t include the outstanding debt but takes cash and cash equivalents into consideration.
The company’s reserves and surpluses were negative until FY15 after which it got a boost from notional profit made on conversion of preference shares and debentures into equity. The company has reported cash equivalents of around Rs 25-40 crore, in its MCA filings between FY14 and FY17.