Educomp, was once a promising player in the private education space, has allegedly gamed loan defaults of more than 87 percent of their total Rs 3,000 crore debt and filed for bankruptcy
In a critical twist to the use of the Insolvency and Bankruptcy Code (IBC), concerns are being raised on promoters trying to escape loan repayments by claiming bankruptcy and going to the insolvency courts.
Educomp Solutions (ESL), which was once a promising player in the private education space, defaulted on loans. With lenders staring at losses of over 87 percent of their total Rs 3,000 crore exposure, Educomp filed for bankruptcy, according to The Wire report.
Moneycontrol could not independently verify the authenticity of the report, and multiple calls to Shantanu Prakash, Promoter and Chairman of Educomp, elicited no response.
Educomp went to the National Company Law Tribunal (NCLT) for insolvency in May 2017. As per The Wire report, it has examined documented evidence that shows how ESL started the effective transfer of its core business to other companies having strong links with the original promoter before taking the original corporate entity to the bankruptcy court.
Boundary Holdings and Ebix Inc were the only two bidders for it at the NCLT and both were found to have business relationships with Educomp.
The report alleges that despite the statutory auditor’s (Haribhakti & Co. LLP) report on Educomp raising concerns over its balance sheet numbers, the NCLT auction proceedings appeared to be going on as if nothing is out of the ordinary.
The report also points out that when Educomp filed for insolvency, it effectively shifted its ‘smart class business’ to another firm – Smart Class Educational Services Pvt Ltd (SESPL) and continued to do business with various schools.
It pointed out that contracts of a large number of schools that were ‘smart class’ clients of Educomp were renewed under SEPSL either in part or full. Some of the schools were given incentives to sign contracts with SEPSL, according to a former employee of ESL who declined to be identified.
ESL listed its shares through IPO in 2006. Its share price went up to Rs 5,600 in 2008 and its market cap was around Rs 10,000 crore. It raised debt from banks by pledging its shares and assets. On March 30, 2018, its share price was around Rs 4.5 (after split) and market cap was about Rs 55 crore.SBI, IDBI Bank, CBI, UBI, J&K Bank, ICICI Bank, Axis bank, and PNB are among the lenders to ESL.