The regulator could launch a probe into alleged improprieties in related-party transactions, among other things, according to people aware of the matter.
The Securities and Exchange Board of India (SEBI) is likely to investigate the affairs of solar EPC company Gensol Engineering Limited (GEL).
“SEBI is concerned about issues of corporate governance, especially the related-party transactions and submission of alleged falsified debt servicing documents to rating agency ICRA,” a person aware of the matter said.
“SEBI may also investigate the company from a funds diversion angle,” the person added. According to a source, SEBI is also scrutinising disclosures made and is likely to look into the accounting practices of the company and associates. The steep rise in its balance sheet may also be examined. GEL has reported a compound annual growth of 52.1 percent in its profit over the last five years.
Moneycontrol has written to Gensol Engineering seeking comments but no response was received. SEBI also did not share any comment on the queries related to Gensol Engineering. It is worth noting that SEBI as a policy usually avoids commenting on individual company-related queries.
Besides, the allegations of falsified debt servicing documents, the other key concern is linkage of GEL with BluSmart which runs a fleet of electric cabs on call.
The companies share the same promoters, Anmol Singh Jaggi and Puneet Singh Jaggi. BluSmart’s business model differed from that of other taxi aggregators in that it outrightly owned the cars in its fleet. To purchase the EV fleet it took loans from two energy sector PSU NBFCs.
Rating agencies CARE and ICRA both downgraded the GEL’s loan facilities to D or in simple terms junk/default grade, after feedback from lenders to the company. Though GEL in disclosures claimed that it has sizeable available liquidity to support its operations during the growth phase, ICRA’s press release noted "certain documents shared by GEL with ICRA, on its debt servicing track record, were apparently falsified."
This issue was the trigger for the regulator to look into the corporate governance practices of the company. ICRA in its note added, "Moreover, the rating also factors in the business linkages of GEL with its promoter group entity, Blusmart Mobility Private Limited (Blusmart), which is a loss-making entity and recently delayed on its NCD payments, which in ICRA’s opinion can also have an adverse impact on the financial flexibility and capital raising ability of GEL."
CARE ratings Limited in its rating rationale noted, "On account of ongoing delays in the servicing of term loan obligations as per feedback from its lenders."
On the related-party transactions, SEBI is likely to look into the lease agreement between GEL and BluSmart. Out of BluSmart’s total fleet, almost 3,000 EVs are owned by GEL through its EV financing arms Gensol EV Lease Pvt Ltd. It is suspected that the lease agreement was not on fair terms and hence may have caused loss to the minority shareholders of GEL.
On the fund diversion part, the regulator is likely to look into whether the money raised by the company for purchasing the EV fleet was used for the same or channelled into some promoter-led entities in any manner. Other transactions may also be under the scanner.
Struggling with financial issues, GEL tried to sell the EV fleet to a subsidiary of Refex Industries but the talks fell through. GEL and Refex Industries had both made the disclosures in exchange filings.
GEL was incorporated in 2012 and listed in 2019. The pitch for the initial public offering was around the clean energy business and future prospects of the company.
The company is headquartered at Ahmedabad. As per exchange data, the promoter holding in the company is 62.65 percent and 81.70 percent is pledged.
The company in its mission statement says "Fighting climate change by disrupting the clean energy ecosystem." But in the current climate, the company needs to come clean on the various allegations and show that it still has the energy and ethos to survive.
In Friday's trade, shares of Gensol Engineering settled 3 percent higher at Rs 163 per share on the NSE, even as the broader markets fell amid tariff fears.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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