MUMBAI: Banks are reluctant to give working capital loans to cash-starved CG Power as government agencies step up investigation into alleged wrongdoings that have led to the sacking of its chairman Gautam Thapar.
Three people aware of the development told ET that the CG Power board, which had sought nearly Rs 200 crore of loans, has drawn a blank so far.
“We have already burnt our fingers with the company. And now, its top management is being investigated by the ministry of corporate affairs. With earlier loans turning bad, it doesn’t make sense to take on additional exposure,” said an official aware of the development.
Corporate governance violations surfaced at CG Power and Industrial Solutions over the past month, with a board-led probe revealing wrongdoings by its current and former employees. The probe found that these employees had allegedly understated liabilities and advances made to related parties while pledging assets of the company without permission.
More Lenders Likely to Convert Shares into Equity
It said that advances to related and unrelated parties were understated by Rs 4,796 crore and total liabilities understated by Rs 2,661 crore.
CG Power fired promoter Gautam Thapar from the post of chairman of the company on August 29. The CG Power management had undertaken discussions with lenders and requested them for more working capital. CG Power already has a debt of Rs 4,000 crore. “We want the company to run as a going concern. But with the ongoing investigations in Bhushan, IL&FS and other loan cases, we not only have to worry about the Central Vigilance Commission but these investigative agencies as well that come after banks with the power of hindsight,” said a banker involved in the matter.
Lenders that haven’t so far converted shares into equity are also planning such a move to have a better say in the management. Some of India’s biggest mutual funds hold substantial stakes in CG Power. HDFC Asset Management Company holds 9.18%, Aditya Birla SunLife AMC 8.94%, Franklin Templeton AMC 3.19%, Reliance Capital Trustee 2.03% and IDFC Sterling Value Fund 1.53% at the end of June. LIC holds 2.25% in the company while private equity giant KKR holds 10.8%.
Top officials close to CG Power say that banks are equally responsible for the current mess as they failed to do proper checks and balances before disbursing loans. “It is in everybody’s interest, including banks and fund managers to be as much accountable and get the company back on its feet,” said a person close to the company’s board.
The board is considering selling non-core assets and exploring various fundraising avenues to deleverage the company and optimise its operations.
ET recently reported that Thapar had sent a legal notice to the CG Power board contesting his removal which he said was illegal.