Deccan Charger’s Owner Plays Financial T20.

The Facts are as Stark as they can get. The firms name is DCHL.
1. Turnover for the year ending 31 March 2011: INR 976 Crores or 9.76 Billion.
2. Net Cash Position (NCP) as on 31 March 2011: INR 390 Crores, or 3.90 Billion.
*NCP is the excess of liquid assets (Cash, bank balances, deposits) over current liabilities.
3. Net Cash Position (NCP) as on 30 June 2012: INR minus (-) 4300 Crores or minus (-) 43 Billion.
* The positive cash position turned negative, a change of some INR –4690 Crores or –46.90 Billion in just about 15 months
4. Ratings assigned to DCHL until 30 June 2012 were:
  • Short Term Instruments: A1+, (Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk).
  • Short Term Bank Facilities: A1+, (Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk).
  • Long Term Bank Facilities: AA, (Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk).
The above ratings were suddenly & drastically changed on 2 July 2012 to D (Instruments with this rating are in default or are expected to be in default soon), A4 (Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default), and B (Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations) respectively, almost as if overnight. The credit rating agency CARE, whose second biggest shareholder is Canara Bank, had been rating DCHL for past eight years. What prompted CARE to axe the ratings? It was a case of becoming wise after the fact. The firm defaulted on making repayment of its short term debt on 26 June 2012. The volte-face by CARE should not come as a surprise to those who have not forgotten the shenanigans of global rating agencies like Standard & Poor, Moody’s or Fitch in the financial meltdown of 2008 and the role played in it by highly (over) rated mortgages and collateralized debt obligations or CDO instruments. The very nature of credit rating business is such -agency gets paid by those who it rates- that either its integrity is compromised or its competence shredded. It is sad that this chimera still continues unabated. 
The company at the centre of this emerging fraud, DCHL, is Deccan Chronicle Holdings Limited, controlled by T Venkattram Reddy, whose father T Chandrashekhara Reddy was a Congress MP of upper house for 12 years until his death in 1993 and uncle T Subbarami Reddy was former Union Minister, and Vinayak Ravi Reddy. Lenders to this flamboyant enterprise include public, private and cooperative sector banks, other private entities, insurance, and even a pension fund. It maintained 40 bank accounts in some 28 banks. Indian Express has published this table of its major lenders.
Lenders are now crying wolf after the party has ended and the eyes are wide open after a 15 month binge. The Financial Express report says that *Lenders complain to the ministry about Deccan Charger’s dishonourable intentions*. Why Deccan Charger? Because that is the IPL team owned by DCHL. This calls for a close look at IPL finances too, but that is another story for another day. The favourite game of finger pointing has began. Lenders are pointing fingers at the rating agency to shift the blame. But, can they? Lenders had access to the audited books of accounts up until March 2011 at least. DCHL avoided publishing results for March 2012 by changing the financial *year* to 18 months- 30 September 2012. That should have rang warning bells. Moreover, the borrowing spree of  such huge amounts, almost 5 times the turnover of the company, could not and should not have gone unnoticed as consortium of lenders, at least banks, are supposed to share information with each other under prudential banking norms. The risk analysts and debt managers should have gone over the operations of the borrower with a fine comb. But obviously that did not happen. It has only one explanation. The lenders were not overawed by the *super CARE ratings* bagged by the firm, any lender worth his salt would know their worth, but were overawed most likely by the *political ratings* the firm commanded.
Foot Note: One private lender has already taken possession of the eye-stopper flamboyant assets of the firm: ^^A lender told The Indian Express that 12 of his cars including four Rolls Royce Phantoms, two Maseratis, two Ferraris and a Lamborghini carrying Hyderabad registration are parked at a lender’s farmhouse in Delhi^^. But his collection has more of: ^^Rolls Royce Phantom, Porsche Cayenne S, Lamborghini, Maserati, Ferrari, Land Rover, Audi and Mercedes Benz^^ apart from trophy winning race horses. If nothing else, banks’ top brass may claim these trophies as mementos
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