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Friday, August 2, 2013

Vadivelu's missing well .... listed Firm loses Factory in burglary !!

Those who have invested in secondary market [with little knowledge of finance market] will know that better…. You see bears everywhere.  In Insurance, in most coverages ‘selection of risks’ is not allowed ~ all property will have to be insured and one cannot insure only those which are prone to losses and pay premium for those alone – for this will be against the Insurers.  However Burglary Insurance is different ~ it allows selection.  Property is insured under both Fire and Burglary Insurance … when it comes to Burglary coverage

1)   the building / fixed assets portion is excluded from coverage as this will not be exposed to the peril ‘burglary’
2)   in case the stocks are bulk in nature – total loss i.e., the entire property getting lost in a burglary is unlikely… in such cases in keeping tune with the principle ‘PML – probable maximum loss’ – insurance can be arranged on ‘first loss basis’ – wherein coverage is granted upto a fixed % on stocks – premium saving.

It is another matter that there have been losses to property arising out of burglary defying all common logic…. There could be material which may never be of use to burglar – still they get stolen – yet cause huge loss to the insured. There have been reported losses where it would be humanely impossible to lift the material in one-go and yet truck-loads could get lost. In one known instance, medicine [schedule drugs which can be bought only with prescription and have to be remain refrigerated always] worth lakhs of rupees were burgled……….~ this one reported in Business Standard would take the cake……

Its shares are trading below a Rupee and naturally nobody would be willing to trade at this stage ~ no transaction for more than a month – it is the Kolkata based  Vikash Metal & Power Ltd promoted by Vimal Patni….. this company was in news when the scam in the allocation of coal block  hit the headlines.  

Reports suggest that  the promoters were mired in litigations involving Income Tax and Excise department. There were reports of the Patnis raided by the Income Tax  too.  It was alleged that the proprietors had not filed their IT returns and the group came under the scanner of the Central Excise department later. The company had been accused of concealing the stock of sponge iron at its Bolpur godown in West Bengal. Agency sources said coal ministry officials ignored its poor credentials including tax litigation still allocated the coal block, which was sought to be cancelled later. 

This is not about the coal scam but ‘incidence of robbery’ a la Vadivelu losing his well.  Business Standard reports that Vikash Metal & Power says it lost a building and other stuff worth Rs 90 cr to an "incident of robbery" and auditors endorsed it.  Here is the report extract.

It happened in West Bengal’s Purulia last year. At least, that was what the victim, a listed company, told its shareholders in its latest annual report. The facts of the case presented by the company and endorsed by its auditors challenge the accounting notion of ‘immovable property’ and raises questions about the level of oversight by various regulatory authorities, say market watchers.

On April 12, 2012, Kolkata-based steel maker Vikash Metal & Power says it was the victim of a robbery at its plant site in Poradiha village of Purulia district. Among what was taken away were a factory shed, a building, heavy machinery used to make steel rods and stock worth crores of rupees. The company informed the stock exchange a little more than two months later, on June 21, saying a police complaint and an insurance claim had been filed but without revealing the extent of loss.

A detailed version came in the annual report put before the shareholders six months later.For the year ended June 30, 2012, the company clocked revenue of Rs 476 crore and reported a loss of Rs 179 crore. Over half or Rs 90.4 crore was ‘exceptional item (loss due to robbery)’. Note number 25 to the accounts itemised it as plant & machinery worth Rs 51.3 crore robbed; value of stock lost, Rs 26 crore. And, even factory shed and buildings stolen, worth about Rs 12 crore. Elsewhere another note in the annual report said, “As the robbery was on April 12, depreciation on the item lost was taken till that date and removed from the gross block and accumulated depreciation, and booked as loss due to robbery under extraordinary item. The written down value as on the date of incident was booked as loss under the profit & loss account.” What about the insurance claim the company had earlier said it had made? "The company has filled the insurance claim but as the time period will be long to get the claim, loss was booked to show the clear picture of financial statements,” the note added.

Auditors Rakesh Singh & Co in their report said, “Major parts of plant has been reported lost and looted, thus putting the question on the going concern concept of the company and, moreover, the company operation was suspended from October 2011.” Conveniently, the robbers also took away the registers where the company had recorded the details of its fixed assets. “This (was) maintained at the factory which is missing after the robbery and could not be presented to us for verification,” the auditor said.

A Senior market expert was stated as commenting : “This is the first time I am seeing something like this. Looks like a total fraud. It raises several questions as to what the auditors and independent directors are doing”. 

Vikash Metal hit the market in 2005 with an Initial Public Offer of Rs 25 crore. It offered Rs 10 shares at a 100 per cent premium, at Rs 20 each. Kolkata-based Microsec India was the merchant banker. According to the offer document cleared by the Securities and Exchange Board of India, the company raised the money to fund the very plant in Purulia that was “robbed” seven years later. Two institutions, Bank of New York Mellon (BoNY)and Ushdev International hold 41.48 per cent and 9.1 per cent, respectively. BoNY is a custodian and typically holds shares on behalf of other institutions. Vikash’s troubles peaked around early 2012, when it failed to comply with the listing agreement requirement of filing quarterly results. In April 2012, the National Stock Exchange suspended the scrip for “Non-compliance with provisions of the listing agreement (including) non- submission of financial results for the quarter ended December 31, 2011.” The scrip continued to trade in the BSE, hitting newer lows. This week it was trading at far less than a Rupee. 

In a rib tickling comedy vaigai puyal Vadivelu would go to a Police station seeking to lodge a complaint of theft of a well. Yes the ‘agricultural well’. He would state that he took a bank loan for digging a well and planned to provide drinking water to the residents of nearby villages and provide water for irrigation. In his defence, he would state that for loan, the bank officials had visited, made a report and then approved loan. On the Govt. side, he would claim that Govt officials had issued receipt approving the well – all this done by taking bribes and without physically inspecting the site / property at all - thus he would say he has the receipt and would go to the Collector or to Court for filing a suit, if the FIR for missing well was not registered. The stunned Police Inspector would resign his job and run away in the comedy.

With regards – S. Sampathkumar.

27th July 2013.

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