Sebi warns investors of Sahara OFCD issue

Don't be forced, don't be foolish. That's the message in Sebi's advertisement warning investors from switching their OFCDs with Sahara Q and Sahara Credit Cooperative's schemes. The company's paid-up, equity surged from Rs 5 lakh to Rs 2,000 crore in just a year, report CNBC-TV18's Sajeet Manghat and Sandeep Srikanth. 

Sahara Q Shop Unique Products Range is the latest corporate entity that's giving market regulator Sebi nightmares.
The company was incorporated and registered in Maharashtra in July 2011 by Sahara promoters Subrata Roy and Swapna Roy with an initial authorised capital of Rs 10 crore - Rs 5 crores in paid-up equity and Rs 5 crores in preference shares. The promoters registered the company in Mumbai, with offices at Hotel Sahara Star for an equity capital of Rs 5 lakh.
Nothing unusual there, so what's eating the market regulator?
Sebi's discomfort stems from the fact that in less than a year, the company's equity capital has shot up to over Rs 2,000 crore. In December 2011, barely five months from incorporation, it issued 20,000 non-cumulative, non-convertible redeemable preference shares to Subrata Roy at Rs 1,000 per share. This works out to Rs 2 crore. These shares held a coupon rate of 0.05 percent, redeemable at the end of 5 years at Rs 1,750 per share.
Six months later, in June 2012, another large dose of equity infusion followed.
The board not only included hospitality to the company's articles of association, it also hiked the authorised capital from a mere Rs 10 crore to Rs 4,000 crore - that's Rs 3,500 crore in paid-up equity and Rs 500 crore in preference shares.
Then, on the October 4, the promoter-shareholders allotted 200 crore shares of Rs 10 each amounting to Rs 2,000 crore to Aamby Valley City Developers, a wholly-owned subsidiary of Aamby Valley Limited, Sahara India Commercial Corporation and Swapna Roy.
So as of October, Aamby Valley City Developers holds 35 percent in Sahara Q Shop, Sahara India Commercial Corporation (SICC) holds 40 percent and Swapna Roy holds a 25 percent stake.
But here's the rub. SICC also holds a 25.42-percent stake in Aamby Valley and has lent it over Rs 3,800 crore as a business advance.
Aamby Valley's other promoters include Sahara India Real Estate Corporation with a 40.40-percent stake and Sahara Housing Investment Corporation with a 2.77-percent stake. It's these two Sahara group companies whose OFCD issue has ruffled SEBI's feathers.
Interestingly, Sahara Group had offered over 3,500 acre of immoveable property at Aamby Valley as security against repayment of monies under OFCDs issued by these two companies.
Sebi is also not amused that Sahara Q Shop had entered into an agreement with Sahara India to not only use brand 'Sahara', but to also share infrastructure in 1,525 locations where the Sahara India Group is present.
In addition, Sahara Q Shop will be provided field staff by Sahara India for a monthly fee of Rs 2 crore for three years ending March 2015.
It's this intricate web of ownerships and relationships that has prompted Sebi to warn investors against transferring OFCDs to any schemes by Sahara Q Shop or Sahara Credit Cooperative.