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ICICI Venture portfolio company faces investigation

The Indian private equity firm has called for an enquiry into the running of retail company Subhiksha after liquidity issues surfaced and KPMG was unable to complete an independent review of company accounts.

ICICI Venture Funds Management has written to India’s Registrar of Companies calling for an investigation into the operational, managerial and financial affairs of portfolio company, Subhiksha Trading Services, an Indian retail chain.

The private equity firm is also seeking an independent audit of the company’s accounts, which have remained unaudited for the last 15 months.

In January, ICICI Venture removed Renuka Ramnath, its managing director and chief executive, and Rajeev Bakshi, its joint managing director, from Subhiksha’s board of directors. Other directors also stepped down from the company’s board over liquidity issues that had come to light in October 2008.

In the same month, KPMG stated it had been unable to conduct an independent review, as requested by the board in November, because Subhiksha’s management was not co-operating. 

ICICI Venture had granted Subhiksha a loan of INR500 million ($10 million; €8 million) to meet short-term liquidity issues in September 2008, according to a statement from the firm. Prior to the end of September 2008, there was “no inkling whatsoever of there being any liquidity issue in Subhiksha”, the firm said. By the end of October 2008, however, it was clear that Subhiksha’s liquidity issues were more severe.

Subhiksha claims it was close to raising equity in September when “calamity hit the global markets”. As lenders were unable to extend further credit, this brought the company to a standstill when it “could not pay for fresh buying [and] the trade cycle collapsed in October”, according to a company statement.

Subhiksha needs a liquidity injection of up to INR3 billion, the company said. However, it has debts of almost INR8 billion, according to an industry source. The company has approached its lenders, which include HSBC, Yes Bank, Axis Bank, ICICI Bank and HDFC Bank, for a corporate debt-restructuring programme, the source said.

Subhiksha admits to salary non-payments and is in arrears with vendors and rents, “not because we do not want to pay, but because we can’t pay”.

However, Subhiksha has made it clear it intends to remain in business with the backing of financial investors and the banks. “In fact, the irony is that this is the best time for our business. We are kicking ourselves on missing out by mucking [up] the capital piece,” said the company's statement.

ICICI Venture has said it is in discussions with all lenders and investors to explore options for the revival of Subhiksha’s business. It declined to comment on whether it would sell its 23 percent stake in the company.

ICICI originally acquired a 38 percent stake in Subhiksha for INR930 million between 2000 and 2004. In March 2008, it sold a 10 percent stake to private investment firm Zash Investment for INR 2.3 billion. It had previously sold a 5 percent stake to ICICI Prudential Mutual Fund for INR 750 million in June 2006.

Currently, R Subramaniam, the company's founder, holds a 59 percent stake. Subhiksha’s employees hold the remaining 3 percent.