Sahara: Forced Redemptions Or Dead Investors?

Did you see the Sahara advertisements last weekend? Menaka Doshi asks  – did Sahara force redemptions on its investors? Either that or crores of its investors died in the past 12 months!

It’s not a conclusion we've reached lightly. As always the story is best told using numbers.
As on 13th January 2011 Sahara Housing Investment Corporation (SIHCL) had raised Rs 6380 cr via optionally fully convertible debentures (OFCDs) issued to over 75 lakh investors. Sahara India Real Estate Corporation (SIRECL) had raised Rs 19400 cr also via OFCDs issued to over 2 cr investors.  In an affidavit filed with the Supreme Court in January last year (4/1/12) Sahara claimed that SHICL OFCDs worth Rs 10 cr were redeemed on account of investor deaths. The outstanding amount – Rs 6370 cr. And SIRECL OFCDs worth Rs 2349 cr were refunded on account of investors deaths and unsecured loans to investors. The outstanding amount – Rs 17051 cr. That means as on January 4,  2012, of the Rs 25780 cr collected by OFCDs issued by both companies, Sahara had redeemed or refunded Rs 2359 cr. The aggregate outstanding was Rs 23421 cr
 
SHICL                               SIRECL               Combined
Raised                              Rs 6380cr             Rs 19400cr           Rs 25780cr
Investors                           7513966                21640371             >30000000
As on 4.1.2012
Redeemed                         Rs 10cr                Rs 2349cr             Rs 2359cr
Outstanding                       Rs 6370cr            Rs 17051cr           Rs 23421cr           SAHARA : CONFUSED OR LYING?
Now, exactly a year later, Sahara claims the outstanding is just Rs 3663 cr (as per its ad released last weekend) and that Rs 22117 cr have been repaid. That means in barely 12 months it has redeemed over Rs 20000 cr of OFCDS.
That’s no small amount. And it throws up equally big questions. First – in a press release on December 5th, Sahara’s statement to the media said only Rs 2620 cr was outstanding as per November 30th 2012. How did Rs 2620 cr outstanding in November 2012, become Rs 3663 cr 3 months later? Is Sahara confused? Or lying? I don’t know as the company refused to respond to my questions. Let’s get to the second question – did Sahara force redemptions upon its investors or are most of them dead? SAHARA: FORCED REDEMPTIONS OR DEAD INVESTORS?
The 2 Sahara companies issued 6 series of OFCDS – SHICL issued Income, Multiple and Housing bonds. SIRECL issued Nirman, Real Estate and Abode bonds.
Let’s look at SHICL first. It issued the OFCDS from November 20, 2009 to April 13, 2011
The Income bond  would mature in 10 years, starting 2019. It had no option for premature redemption.
The Multiple bond would mature in 15 years, starting 2024.  Earliest premature redemption was permitted 10 years after allotment – that is starting 2019.
The Housing bond was issued on similar terms – redemption starting 2024, premature redemption permitted only after 2019 SIRECL issued OFCDS from April 25, 2008 to April 13, 2011
The Nirman bond matured in 4 years, so say starting April 2012. Let’s assume all investors have been paid back. That would amount to a couple of thousand crore rupees.
The Real Estate bond matured in 5 years – that's starting April 2013. There was no provision for early redemption
The Abode bonds matured in 10 years, so say starting April 2018. Early redemption was possible only after 5 years – that’s after April 2013 
                                         Tenure                                 Premature Redemption
Income Bond                    10 yrs (2019)                       No
Multiple Bond                    15 yrs (2024)                       After 10 yrs (2019)
Housing Bond                   15 yrs (2024)                       After 10 yrs (2019)
Nirman Bond                     4 yrs(2012)                          Fully repaid (assumption)
Real Estate Bond              5 yrs(2013)                          No
Abode Bond                      10 yrs(2018)                         After 5 yrs (2013)
So there is no provision for premature redemption in two bonds and in the other three the earliest opportunity for premature redemption is either starting April this year or 2019. The only redemptions required were a couple of thousand crore rupees for the Nirman bonds.  How then did Sahara redeem Rs 20,000 cr? Investors had no right to redeem early! So did Sahara force redemptions upon its investors? Or were these premature redemptions due to death (In its affidavit to the SC, earlier redemptions were explained as deaths or unsecured loans) ! Crores of investors would have had to die in the past month for that to happen.
I know it sounds ludicrous...but if there is a reasonable answer to this – Sahara is not forthcoming. So, Sahara contradicts its own numbers and it either forced early redemptions or crores of investors died. We’ve covered 2 reasons why the Rs 20000 cr refund figure is tough to believe. The 3rd question that arises from all this – Is SEBI chasing thin air? IS SEBI CHASING THIN AIR?
Rs 20000 cr is no small sum. It’s 3/4th  of the government’s disinvestment target for Fy13! So how did Sahara raise Rs 20000 cr in 12 months? Its ad claims the OFCD proceeds were ‘invested in real estate projects and also in securities of real estate companies. . But now those investments have been taken back, realising all amounts with profits for clearing the liabilities  of investors’.  Sahara would have had to sell a long list of assets to raise the money.
It's not impossible that in the past year – while it was fighting SEBI in the supreme court, it was also liquidating these various investments by selling them to other group companies or maybe even external buyers. That means last year, between January 4th and August 31st...in 8 months the 2 Sahara companies had exited all these investments. That leaves SEBI looking like a fool. Because last week it issued orders to freeze the assets and bank accounts of both Sahara companies. Now it seems much of that asset list is gone and since Rs 20,000 cr was generously returned to investors before it was due...most of the proceeds from the sale of those investments are likely gone – so there’s no money in the bank accounts either. So what in heaven is SEBI attaching? Thin air?
As always this drama has left us with more questions than answers. Sahara’s interim application will be heard in the Supreme Court next week – maybe more answers will be forthcoming then!