A section of the board of crisis-hit CG Power has assured lenders and investors that plans are afoot to initiate a change in management control, including the ouster of Gautam Thapar, to put the company’s revival plan back on track, sources said.
The move could be initiated as early as this week, the sources told CNBC-TV18. Institutional investors with exposure to CG Power have also been assured of a plan to expedite the revival of the company. The Ministry of Corporate Affairs has taken stock of the situation at CG Power and has been updated on the future plan of action.
In a regulatory filing on August 20, CG Power said a probe by a legal firm revealed that the Gautam Thapar-founded Avantha Group flagship understated its liabilities and advances made to related and unrelated parties, among other financial irregularities.
CG Power immediately needs a fund injection of close to Rs 500 crore for its working capital requirements in the next two quarters, and the lenders have agreed to extend the financing subject to key management changes being effected. “So, the revival of the company is linked to the management changes,” a source pointed out. One of the key demands is the removal of Gautam Thapar from the board of CG Power. Thapar, part of the promoter group, currently holds only a miniscule 8500 shares in the company, but is designated chairman of CG Power.
The company has already made several management changes this year and more are on the anvil. Managing Director KN Neelkant was away from day-to-day management during the period of investigation that started in May 2019. Further, Sudhir Mathur, who was an independent director of the company and a member of the operations committee, was re-designated as a whole-time executive director in May. CFO VR Venkatesh had resigned at the end of last financial year.
The CG Power board has also articulated a detailed strategy for the revival of the company. Sources suggest that a two-pronged strategy of sale of non-core assets and restructuring the remaining businesses to drive operational efficiency is on the cards. CG Power’s office tower and land parcel are likely to be sold to raise cash. The company is also in the process of evaluating the sale of loss-making international businesses in Hungary and Belgium, an earlier planned initiative that has got delayed. The operations committee of the company is taking aggressive steps towards operational efficiency and believes that all these are likely to put CG Power back on track in a few quarters, the sources added.
While refusing to respond to specific questions posed, a CG Power spokesperson told CNBC-TV18, “The board will take all necessary steps, work with all our stakeholders to put CG back on track.” Mails were sent to Gautam Thapar and key stakeholders --Yes Bank, KKR, L&T Finance and Bharti (SBM) Holdings — but none of them offered any comment on this development.
How the crisis unfolds
The crisis at CG Power came out in the open on August 20 when the company release pointed out major governance and financial lapses. The operations committee noted that the total liabilities of the company and the group may have been potentially understated by approximately Rs 1,053.54 crore and Rs 1,608.17 crore, respectively as on March 31, 2018. Moreover, advances to related and unrelated parties of the company and the group may have been potentially understated by Rs 1,990.36 crore and Rs 2,806.63 crore, respectively, as on March 31, 2018.
The company acknowledged that this may have potentially resulted in a misstatement of past financial statements. The company also reported its interim management compiled financial results (subject to auditor review) for the fiscal year 2018-19 and reported a standalone loss of Rs 1,384 crore. The restated advances to related party at end of FY18 stood at Rs 2,657 crore as against Rs 131 crore reported earlier.
The audit committee further unearthed some suspect, unauthorised and undisclosed transactions that are prima facie prejudicial to the interests of the company and its stakeholders.
These transactions were purportedly carried out by identified company personnel (both current and past) including certain non-executive directors, certain key managerial personnel and other identified employees in breach of the Rules of Procedure of the company without proper information or authorisation.
These transactions appear to have been carried out by various means including inappropriate netting off, using ostensibly unrelated third parties, routing transactions through subsidiaries, promoter affiliated companies and other connected parties.In the regulatory filing, CG Power had stated that the transactions appear to be undertaken in a "seemingly fraudulent manner" and that it would investigate them further. So, expect more skeletons to tumble out of the cupboard.