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Related Party Transactions


wealthymatters

Here are the details of this corporate-banker nexus outed by ICICI Bank and Videocon investor Arvind Gupta.

Gupta’s curiosity was aroused by a 10 per cent coincidence he noticed in ICICI’s loans to Videocon group companies and foreign fund inflows into husband Deepak Kochhar’s firm NuPower Renewables.

NuPower Renewables was originally founded as a 50-50 JV between the Dhoot family and the Kochhar and Advani families .Chanda Kochhar’s brother is Mahesh Advani. Read more of this post

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Virtual Equity


wealthymattersHave you ever wondered how billion dollar infrastructure projects are financed by the private sector in India? Here is the story:

Say there is a Rs.10,000-crore project, with a 70:30 debt-equity ratio. The promoter needs to put up Rs 3,000 crore as equity . Suppose he can scrape together Rs 1,000 crore. He will inflate the project cost to 15,000 crore.

His required  equity contribution now goes up to Rs 4,500 crore but he gets credit worth Rs 10,500 crore, more than enough to finance the entire project.

During implementation through promoter-owned companies, money will be taken out of the project, to fund a part of his equity contribution and to grease the palms that allow such an inflated project cost to go not just unchallenged, but actually blessed.

While implementing the project, he will start another project, take money out of it to fund the remaining part of the original project’s equity contribution and to service the loan on the first project once its construction is over. Then he will start yet other projects, to actually finance the second project, and so on. The first project will turn into a cash cow, if this string of loan-financed projects can continue to mushroom long enough for the loan on the first project to be fully paid off. Read more of this post

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