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Aug 08, 2012, 06.04 PM IST
Under attack for alleged poor governance standards, Indiabulls Financials has hit back at Canada-based research firm Veritas report, calling it 'factually incorrect'.
Clarifying its position, Indiabulls Finance said that the report has ignored disclosures made in the public domain. "We will initiate criminal proceedings against the authors of the report," a company official said.
The company feels such "intentional errors" result into loss for shareholder.
Over the last year, Veritas analyst Neeraj Monga and team have flayed the managements of Reliance Industries, Reliance Communications, Kingfisher Airlines and DLF for similar violations.
Here is the company's response to the report.
1. Note 37(g) on Page 96 of the Annual Report of FY-2012 states: ‘The repayment of the loans granted by the Company to the Trust is dependent on the exercise of options of the eligible employees, at the exercise price as determined by the Trust based on its Carrying Cost and the market price of the underlying shares of the unexercised option ..’.
Note 37(g) makes it abundantly clear that the eligible employees who are beneficiaries of the Employee Stock Option Schemes will pay to the Trust the Total Cost of the Trust, ( including interest cost less dividend) at the time of exercising the Options granted to them.
2. EWT is being levied interest @12% per annum and the total interest income is INR 0.99B and not INR 1.2B. More importantly the Net Interest Income (NII) is Rs. 18 crores given that IBFSL has cost of funds of 10.1% for FY-2012. Rs.18 crores is less than 1% of the NII of Rs. 1866 crores earned by the company in FY 12.
3. On Page 58 in Note 3(e) of Annual Report of FY-2012, the constitution of the EWT has been detailed. As stated in the Annual Report of FY-2012: ‘EWT has been founded pursuant to the approval of shareholders in meeting held of September 30,2010, to administer and implement the Company’s current Employee Stock Option Schemes (ESOP) and any future ESOP schemes. The Trust is administered by independent Trustees."
Given the fact that EWT is not a 100% subsidiary and operates at an arms length through independent trustees, IBFSL cannot give any interest free loan to this entity as per RBI guidelines and has to charge a fair rate of interest. All related disclosures pertaining to this have also been made in Annual Report of FY11 in Note 7 on Page 99.
4. IBFSL has maintained a very healthy practice of grant of ESOP’s to its employees even before it went public in 2004. The ESOP scheme of the company is in line with the other leading HFC’s and NBFC’s.
5. The value of stocks in EWT, have accrued a positive return, for the total employee workforce of 4400 people , of an amount of Rs. 45 crores based on closing price of Rs.210 of IBFSL yesterday(7th August,2012).
6. The company will initiate appropriate criminal proceedings on the authors of the research report for publishing false and factually incorrect data, to create sensation and entice people for benefitting through trading, for the sole purpose of selling their research reports for money.
7. In our opinion such intentional error on basic factual data is resulting into loss for thousands of shareholders. The figure of NII arising out of EWT is Rs. 18 crore , which is less than 1% of total NII of Rs. 1866 crores for the company. The same being projected as 33% of profit before tax in headlines, demonstrates the malafide intentions and criminal actions under Indian Penal Code. We firmly believe that this is not an oversight but an intentional act for profiteering.
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