Robert Vadra, son-in-law of Sonia Gandhi has been in news lately for his dealings with India’s biggest listed real estate company DLF. There are a lot of question that the deal has raised. Let’s try and understand some of the answers to those questions, here.
Who owns Sky Light Hospitality Private Ltd?
The company has issued 50,000 shares with a face value of Rs 10 each and so has an issued capital of Rs 5 lakh. Of this Robert Vadra owns 49,900 shares and his mother Maureen owns 100 shares. So the company is basically owned by Robert Vadra.
What are the total assets of the company?
As per the balance sheet dated March 31, 2011, the company has total assets amounting to Rs48.53 crore. This includes fixed assets of two parcels of land worth Rs 16.18 crore. The total investments of the company are worth Rs 24.37 crore. The cash and bank balances amount to Rs 4.77 crore and the loans and advances are at Rs 3.21 crore. All these assets add up to the total assets of Rs 48.53 crore.
How can a company with a capital of Rs 5 lakh have assets worth Rs 48.53 crore?
This is the crux of the issue at hand. Robert Vadra and his mother Maureen’s contribution to the business is a measly Rs 5 lakh. How did that Rs 5 lakh grow into assets of Rs 48.53crore? A simple explanation is that Sky Light would have borrowed money and used that borrowed money to buy land, make investments, have cash in the bank and to give out loans. This would mean that the company would have to borrow Rs 48.48 crore (Rs 48.53 crore – Rs 5 lakh of capital). But why would anyone in their right minds give a loan of Rs 48.48 crore to a company with a shareholder capital of Rs 5 lakh? This would imply a debt to equity ratio of 970. Also as the balance sheet of the company reveals it has not taken any loans.
So where did this money come from?
For this one needs to take a look at the current liabilities side of the balance sheet of the company. The current liabilities of the company are at Rs 58.05 crore. Of this amount the company received an advance of Rs 50 crore from DLF against a plot of land. As a recent statement issued by DLF says “M/s Skylight Hospitality Pvt Ltd approached us in FY 2008-09 to sell a piece of land measuring approximately 3.5 acres just off NH 8 in Village Sikohpur, Dist Gurgaon…DLF agreed to buy the said plot, given its licensing status and its attractiveness as a business proposition for a total consideration of Rs 58 crores. As per normal commercial practice, the possession of the said plot was taken over by DLF in FY 2008-09 itself and a total sum of Rs 50 crores given as advance in instalments against the purchase consideration.” So DLF gave Rs 50 crore as an advance to Sky Light against a piece of land owned by Sky Light. This land is showed to be worth Rs 15.38 crore in the balance sheet of Vadra’s Sky Light. Accounting values assets at historical cost. So that is the price Sky Light must have bought that piece of land. This raises the question as to where did Vadra raise this Rs 15.38 crore from? DLF comes into the picture only later when the company decides to buy a piece of land from Vadra’s Sky Light.
But what is the difference between a loan and an advance?
Take the case of a salary advance. When any individual takes a salary advance there is no contractual obligation between him the company and at the same time the company does not charge him an interest. The company gives an advance to the employee primarily because there is a relationship between them. Typically employees who have just joined find it difficult to get a salary advance. The same logic works when one company gives an advance to another company. So the first question to ask here is that was there a relationship between Vadra and DLF? Vadra had told the Economic Times in March last year “I have a good understanding with DLF. Our children are friends, we are friends.” Now just because two promoters are friends does that mean one company will give an advance to another? That is something both DLF and Vadra need to throw light on.
Isn’t this advance of Rs 50 crore a part of Skylight’s current liability?
Yes that is the case. A current liability is essentially a debt or an obligation of a company that needs to be paid up in one year. As DLF’s statement says the advance was paid in instalments starting in 2008-2009 (the period between April 1, 2008 and March 31, 2009). This advance has remained on the books of the company till March 31, 2011. This means that DLF had given an advance to Vadra’s Sky Light for a period of greater than two years. Can this be categorized as an advance? Can this be categorized as a current liability? From the way this looks DLF basically gave Vadra an interest free loan and tried to pass it off as an ‘advance’.
Where does Arvind Kejriwal fit into all this?
What Kejriwal is saying that Vadra’s Sky Light used a portion of this Rs 50 crore advance to buy property from DLF. Sky Light also has a 50% stake in Hilton Garden Inn Hotel, Saket, New Delhi, which it has set up with DLF. The main question that Kejriwal is asking “It is well known that DLF has been given 350 acres of land by Haryana govt for the development of Magnolia project in Gurgaon (where Vadra was allocated 7 apartments) and has been given various other properties and benefits by the Congress governments in Haryana and Delhi. Is that the quid pro quo for DLF giving Vadra the seed money for the purchase of these massive properties worth hundreds of crores?”
In simple English what this means is that because DLF gave Vadra what seems to be an interest free loan rather than advance, did the Congress government return these favours by allocating land to DLF in lieu of that? Was there a quid pro quo? While this allegation can be probed, it will be next to impossible to establish.
Where does all this leave DLF?
The gross debt of DLF stands at a whopping Rs 25,060 crore as on June 30, 2012. At the end of March 31, 2012, the gross debt had stood at Rs 25,066 crore. The annual report of DLF points out “the company’s borrowings from banks and others have a effective weighted average rate of 12.38% per annum.”
We can safely say that this rate of interest of 12.38% wouldn’t have changed dramatically between March, 2012 and June, 2012. So a company which has debt of more than Rs 25,000 crore and is borrowing at greater than an interest rate of 12% is basically giving an interest free loan to Vadra. The high debt level has been a huge concern for the analysts who track the company. As Sandipan Palan analyst with Motilal Oswal wrote in a recent report “DLF’s high debt has been a key concern for investors; however, we believe leverage of Rs 16,000-17,000 crore would be a sustainable level for the company.”
Also DLF says that its deal with Vadra is normal commercial practice. If that is the case it would be great if the company could give us a list of other entrepreneurs to whom the company has given an advance running into Rs 50 crore for a period of greater than two years. That should be put everybody who is crying foul in their place.
The article originally appeared in the Daily News and Analysis (DNA) dated October 10,2012 with a slightly different headline. http://www.dnaindia.com/india/report_all-you-wanted-to-know-about-dlf-vadra-deal_1750865
(Vivek Kaul is a writer. He can be reached at [email protected])
Skylight Hospitality Private Limited is a company majorly owned by Robert Vadra. His mother Maureen holds 0.2% of the company. Hence the remaining 99.8% are owned by Vadra. The latest balance sheet of the company filed with the Registrar of Companies throws up some very interesting information. The balance sheet is dated March 31, 2011. The balance sheet used by Arvind Kejriwal and Prashant Bhushan to make the charges that they did against Vadra was dated as on March 31, 2010.
Skylight has a total paid up capital of Rs 5 lakh. Fifty thousand shares of Rs 10 each have been issued. Robert Vadra owns 49,900 shares and his mother Maureen owns the remaining 100 shares. The company claims to have raised no secured loans or unsecured loans for that matter. This means that the owners of the company have put Rs 5 lakh of their own money into the business.
The company has total assets of Rs 48.53 crore. Of this the company has fixed assets worth Rs 16.18 crore. Other than this the company has investments worth Rs 24.37 crore. It has cash and bank balances amounting to Rs 4.77 crore. And it has given loans and advances amounting to Rs 3.21 crore to others.
But the question is how can a company which has a paid up capital of Rs 5 lakh fund assets worth Rs 48.53 crore? This implies an asset to shareholder capital ratio of a humongous 971 times. The question is how did a company in which the owners have invested just Rs 5 lakh end up with assets of Rs 48.53crore?
One answer could be that the company borrowed money and used a part of this money to buy assets and a part of this money was lying in the bank account and had been lent to others. But as I mentioned earlier Skylight has no secured or unsecured loans.
So where did this money come from? For this one has to look at the liability side of the balance sheet. The company has a liability of Rs 58.05 crore. The balance sheet that I managed to download from the ministry of corporate affairs does not have schedules attached to it. Hence one really doesn’t know what these liabilities comprise of prima facie.
But some educated guesses can be made from the statement issued by DLF and the balance sheet of Skylight as on March 31, 2010. Lets first start with the DLF statement “M/s Skylight Hospitality Pvt Ltd approached us in FY 2008-09 to sell a piece of land measuring approximately 3.5 acres just off NH 8 in Village Sikohpur, Dist Gurgaon…DLF agreed to buy the said plot, given its licensing status and its attractiveness as a business proposition for a total consideration of Rs 58 crores. As per normal commercial practice, the possession of the said plot was taken over by DLF in FY 2008-09 itself and a total sum of Rs 50 crores given as advance in instalments against the Purchase consideration.”
So DLF gave an advance of Rs 50 crore to Vadra’s Skylight against a plot worth Rs 58 crore. What the company does not clarify what does it mean by normal commercial practice? Does the company give advances worth Rs 50 crore amounting to nearly 86.3% of the value of the property, to other individuals who have no prior experience in real estate as well?
Also how is an advance different from a loan? An advance is typically made to someone known, which is true in this case. Vadra has claimed to be friends with people who run DLF. The other interesting thing is that an advance is typically short term. So in this case DLF advanced Rs 50 crore to Vadra in 2008-2009. That advance of Rs 50 crore was on the balance sheet of Vadra’s Skylight as on March 31, 2010. This means an advance of Rs 50 crore was with Vadra for a period of between one to two years.
An advance for a period as long as that is not an advance but basically an interest free loan. An advance is typically given when the company expects the deal to be completed within a few months.
Now let’s back to the balance sheet as on March 31, 2011. The fixed assets of Skylight as on this date were valued to be at Rs 16.18 crore. This is exactly the same as the fixed assets of Skylight as on March 31, 2010. Hence, it’s safe to say that the balance sheet is referring to the same fixed assets. The scheduled to the balance sheet as on March 31, 2010, point out that these fixed assets are land plots. One land plot is shown to be worth Rs 15.38 crore.
In fact this is the same plot which DLF is talking about. The balance sheet of Skylight as on March 31, 2010, shows an advance of Rs 50 crore from DLF against this land.
It is reasonable to assume that this land plot against which DLF gave an advance was still with Skylight as on March 31, 2011, given that the value of the fixed assets remained the same when compared to March 31, 2010.
So the sale of this land for which DLF had given an advance of Rs 50 crore had not been completed as on March 31, 2011. This means that the advance of Rs 50 crore to Vadra’s Skylight remained on its books for a period between two to three years.
Hence, it was this Rs 50 crore received from DLF which is a part of the Rs 58.05 crore liabilities shown by the firm as on March 31, 2011. And this was the money which basically used to build assets of Rs 48.53 crore.
Given this, DLF’s claim of the money being an advance and not an interest free loan, doesn’t really hold. An advance is typically made for the short term not for a period as long as two to three years, as seems to be the case here. What DLF gave Vadra was an interest free loan.
The investopedia website defines a current liability as “a company’s debts or obligations that are due within one year.” In Vadra’s case the current liability of an advance from DLF remained on the books for a period two to three years. And that clearly isn’t normal.
DLF statement issued over the weekend says “after receipt of all requisite approvals, the said property was conveyanced in favour of DLF.” This must have happened only after March 31, 2011. This is something only DLF and Vadra can clarify on. Or it will become clear once Skylight’s balance sheet as on March 31, 2012 comes out in the public domain, which will only happen sometime by the middle of next year.
What is interesting is that the value of the land against which DLF gave an advance to Vadra’s Skylight is shown to be at Rs 15.38 crore on the balance sheet of Skylight. DLF values this land at Rs 58 crore. The difference is on account of the fact that Skylight is probably valuing the land at the price at which it bought it at whereas DLF is valuing it at the market price.
But then it brings us back to the question how did a firm which had a paid up capital of only Rs 5 lakh buy land which is shown to be worth Rs 15.38 crore on its own books? Where did the money come from? DLF only came into the picture after Vadra’s Skylight had bought the land and wanted to sell it to DLF.
There is another interesting point that an article in The Hindu points out. Skylight’s balance sheet as on March 31, 2010, has no entries for fixed deposits that it holds or the interest that has accrued on these fixed deposits. But the balance sheet does show a series of fixed deposits on which tax has been deducted (TDS) at source by banks.
The total tax deducted at source from 19 fixed deposits amounts to Rs 4.95 lakh. TDS at the rate of 10.3% is deducted on fixed deposits by banks when the interest paid during the course of the year is greater than Rs 10,000. This means that Vadra’s Skylight has earned an interest on fixed deposits of amounting to Rs 48.06 lakh (Rs 4.95 lakh/10.3%). If we assume a rate of interest of 9% .then the total fixed deposits amount to Rs 5.34 crore (Rs 48.06 lakh/9%). But there is no mention of these fixed deposits in the schedules to the balance sheet. The number can be greater also given that banks do not deduct interest on fixed deposits till the interest during the course of the year amounts to at least Rs 10,000.
Also as on March 31, 2011, Vadra’s Skylight made losses of Rs 9.81 crore on a capital of Rs 5 lakh. Given this, can it continued to be categorized as a going concern?
Robert Vadra has accused Arvind Kejriwal of politics of opportunism. Politics is all about opportunism, this is something that Vadra must understand by now, given that he is married into India’s biggest political family.
Vadra as the son-in-law of Sonia Gandhi, the President of the Congress Party, which is India’s oldest and currently the biggest party in Parliament has to above suspicion, like Caesar’s wife. He cannot simply getaway by trying to strike an emotional cord by putting up status messages on Facebook and not putting out a point by point rebuttal to the charge made by Kejriwal and Bhushan.
The article originally appeared on October 8, 2012 on www.firstpost.com. http://www.firstpost.com/business/dlf-and-vadra-may-have-misled-us-on-the-advance-483293.html
(Vivek Kaul is a writer and can be reached at [email protected])
DLF is India’s largest listed real estate company. During the hey days of the company a few years back, such was the craze for the DLF stock that Kushal Pal Singh, its owner, was listed among the ten richest people in the world. Those days are now gone.
The company has recently been accused by Arvind Kejriwal and Prashant Bhushan of giving interest free loans amounting to Rs 65 crore to Robert Vadra. Vadra is the married to Priyanka Vadra, daughter of Sonia Gandhi.
Kejriwal and Bhushan have released documents which clearly show that companies set up by Vadra borrowed money from DLF and then used that money to buy properties from DLF among other things. (You can access the press release here). The market value of these properties has increased considerably since Vadra bought them.
According to a tweet on the Twitter handle of news channel NDTV, DLF has said that their dealings with Vadra have been completely transparent. Vadra on his part had explained his relationship with DLF to the Economic Times in March 2011. “I have a good understanding with DLF. Our children are friends, we are friends. They are seasoned businessmen. They are not daft. They are educated, sensible people and are reasonable and shrewd in their business. They don’t need me to enhance them. They’ve existed for years,” Vadra had said. (You can read the complete story here).
On the face of it this might look like a completely normal business transaction between two different businessmen. But the latest annual report and the analyst presentation made DLF throw up some interesting questions nevertheless.
As per an analyst presentation (dated August 6, 2012) made by DLF, the gross debt of the company stands at a whopping Rs 25,060 crore as on June 30, 2012. At the end of March 31, 2012, the gross debt had stood at Rs 25,066 crore. (You can access it here).
The annual report of DLF points out “the company’s borrowings from banks and others have a effective weighted average rate of 12.38% p.a. calculated using the interest rates effective as on March 31, 2012 for the respective borrowings.”
So what this means is that the company had debt outstanding of Rs 25,066 crore as on March 31, 2012, and was paying an interest of 12.38% on that debt. The debt outstanding as on June 30, 2012, had not changed much and was at Rs 25,060 crore. It is fair to assume that over a period of three months the interest rate on the debt outstanding wouldn’t have changed significantly.
What is also interesting is that during 2011-2012(i.e. the period between April 1, 2011 and March 31, 2012) the sales of the company stood at Rs 4582.67 crore. This means that the debt of the company is nearly 5.5 times its annual sales, which is extremely high.
The question that DLF needs to answer is that why is a company which has such huge debt outstanding and is paying an interest of 12.38% per year on it, giving out interest free loans? Also it seems to have been having trouble in bringing down its outstanding debt. The outstanding debt between March and June 2012, has gone down by only Rs 6 crore.
The company has been trying to bring down the debt by selling investments that it had made over the last few years. It recently sold a plot that it owned in Lower Parel in Central Mumbai to Lodha Developers for Rs 2,750 crore. The company has been trying to sell several of its other investments over the last few years.
The high debt level has been a huge concern for the analysts who track the company. As Sandipan Palan analyst with Motilal Oswal wrote in a recent report “DLF’s high debt has been a key concern for investors; however, we believe leverage(which means debt in simple English) of Rs 16,000-17,000 crore would be a sustainable level for the company.”
So here is a company which analysts believe should be cutting down on its debt by around Rs 9,000 crore, and it has been giving out interest free loans to an individual with zero or very little experience in running a real estate business. DLF needs to tell us in some detail the “business” reasoning behind this decision.
Another interesting point that comes out while going through the annual report of the company is that it has 65 non current investments. The annual report of DLF points out that “Investments are classified as non-current or current based on management’s intention at the time of purchase. Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. All other investments are classified as non-current investments.”
Of the 65 non current investments only two are joint ventures. One of these joint ventures is with Skylight Hospitality Private Limited, a company owned by Vadra and his mother Maureen. Skylight owns a 50% stake in Saket Courtyard Hospitality Private Limited, which runs the Hilton Garden Inn Hotel in Saket, New Delhi. This is the only operational hotel of the company.
When it comes to making non-current investments joint ventures are not a favoured form of investing with DLF, given that only two out of its 65 non current investment are joint ventures.
The venture with Skylight is very small by DLF standards. In the annual report of the company the book value of the joint venture is put at just Rs 5.6 crore. Also why would a company as big as DLF is enter into a joint venture for a four star hotel with an individual who has absolutely no or very little prior experience in running a hotel? This is something that needs to be answered. A recent report in the Daily News and Analysis seems to suggest that the hotel run by this joint venture is on the block. (You can read the story here).
The entire Congress party has come to the rescue of Robert Vadra and tried to project the deals between Vadra and DLF as normal business transactions. One senior leader even went to the extent of saying “doesn’t Vadra have a right to occupation?” Yes, Vadra has the right to an occupation and so does DLF. But there are too many unanswered questions here that need to be answered.
The article was originally published on www.firstpost.com on October 6, 2012. http://www.firstpost.com/business/dlf-borrows-money-at-12-38-lends-free-to-vadra-481727.html#.UG_tdwlmmIs.twitter
(Vivek Kaul is a writer. He can be reached at [email protected])