Is First International Group a front for Dharmesh Doshi?

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Is First International Group, a company that has offered to buy Electrosteel Steels Ltd from a group of banks, a front for Dharmesh Doshi, a shadowy figure from the second big stock exchange scandal to roil Indian markets?

And did First International or its associates have prior dealings with Electrosteel, when the latter was still being run by its promoters?

The answers to the two questions—definitely not no, according to a Mint investigation—could confirm the worst fears of banks, financial sector regulators, and investigative agencies that promoters who lose control of their companies to banks could regain control of them through associates or fronts, including some incorporated overseas.

Indeed, experts have already red-flagged this as one of the factors that banks have to watch out for when they acquire control of companies that are unable to repay their loans.

The story begins earlier this year when a consortium of lenders to Electrosteel Steels set out to identify a buyer for the 50% equity they received in the company in return for Rs.2,500 crore in unpaid debt through a conversion under the strategic debt restructuring scheme.

An unlikely candidate emerged as a possible buyer.

Its name was First International Group Plc. (which quaintly abbreviates as FIG). The only other contender was Tata Steel Ltd. Since FIG was offering Electrosteel creditors a better deal, they were leaning towards a sale to it.

FIG approached SBI Capital Markets, which was working on behalf of lenders, with an expression of interest in Electrosteel Steels, said a banker familiar with the negotiations who spoke on condition of anonymity.

As news of the likely deal spread, the question on everyone’s mind was—what is FIG? A glance at the company’s website shows that it is a London-based entity which deals in securities.

Next question—why is a securities company interested in buying an Indian steel company?

To this the bankers had no answer.

Bankers asked the local arm of audit firm Deloitte India to conduct forensic due diligence exercise on the company. The deal is currently in cold storage pending the results of this audit.

Meanwhile, documents accessed by Mint suggest close links between FIG and Doshi, an associate of stock broker Ketan Parekh, who was banned from the Indian markets in 2001. They also show that FIG had extensive dealings with both Doshi and his company, Jermyn Capital Partners, which, in turn, had some dealings with Electrosteel.

FIG did not respond to an e-mail seeking comment. A receptionist at the office refused to connect a call from Mint to any of the executives in charge.

Rupin Vadera, who was chief executive officer (CEO) at FIG until 29 February, did not respond to a separate e-mail seeking comment.

Doshi continued to remain elusive. Emails sent to him at one of his known addresses bounced back. He did not respond to an e-mail seeking comment sent to another known address.

A spokesperson for Electrosteel Steels did not respond to an e-mail seeking comment. A follow-up phone call was transferred to the compliance officer, who declined to comment.

First International Group’s origins and ties to Doshi

FIG was incorporated in January 2006, according to filings in the UK. A month later, Vadera and his wife Madhavi Vadera took over as directors of the company. They continued in their roles until 29 February this year, when filings show that their directorship was terminated.

Between 2006 and this February, Vadera was operating as the CEO of FIG. His designation on the company’s website has now been changed to “strategic consultant to the board”. Madhavi Vadera’s name has been removed from the website.

In January 2006, when FIG was incorporated, a Dubai-based entity named Jermyn Capital Llc. was facing the heat from Indian regulators for its links to Doshi.

Doshi, along with Ketan Parekh, was one of the key accused in the stock market scam of 2001 and had been barred from the Indian markets for life. That was the second major scam to roil Indian markets; the first took place in the early 1990s and was masterminded by Harshad Mehta, Parekh’s mentor.

The Securities and Exchange Board of India (Sebi) found links between Jermyn Capital Llc., London-based Jermyn Capital Partners Plc. and Doshi. In a 13 January 2006 order, Sebi noted that “Jermyn Capital Partners Plc was formerly known as Triumph Securities UK Plc which was a 100% subsidiary of Triumph International Finance (India) Ltd (TIFIL) through its Mauritius based subsidiary International Holdings (Triumph) Ltd”.

“SEBI had earlier conducted investigations in the wake of the ‘Stock Market Scam of 2001’ and initiated various punitive actions against TIFIL and its directors including Mr. Ketan V. Parekh, Mr. Kartik K. Parekh, Mr. Dharmesh Doshi, Mr. Jatin R. Sarvaiya and Mr. A.R Kapadia. While Mr. Ketan Parekh and three other Directors of TIFIL were arrested in May 2002, Mr. Dharmesh Doshi evaded arrest and is still absconding,” said the 13 January 2006 order.

While Jermyn Capital Partners Plc. was barred from the Indian Securities market, it continued to remain active in the UK. In 2010, the company changed its names to Orbit Investment Securities Services Plc. It continues to function under that name.

So far, the stories of FIG and Jermyn Capital Patners Plc. don’t intersect.

The shareholder documents of FIG show that 97% of the shares are held by Ragens Corp., which is incorporated in the British Virgin Islands, a known tax haven, especially for shell companies. Rupin and Madhavi Vadera hold the rest, according to the FIG annual return filed on 11 January 2016.

The paper trail on Ragens turns cold here and no information is available on the eventual owner.

However, emails accessed by Mint show that Doshi had close ties with FIG and was in regular touch with Vadera on a number of transactions conducted by FIG and also on operational issues.

For instance, in an e-mail dated 16 July 2006 from Vadera to Doshi (at his email address d.doshi@jermyncapital.co.uk), Vadera discusses the firm’s application to UK’s financial regulator Financial Services Authority (FSA).

In another email dated 8 November 2006, Doshi lays down the agenda for an upcoming meeting with Vadera and lists 10 items to be discussed. These include items like the “German portfolio”, “future projects in Romania”, “movement of staff”, “budgets for next year” and “FSA approval-capital requirements”.

The email, which bears the electronic signature of Jermyn Capital Partners, shows the wide range of issues pertaining to FIG that Doshi was involved with in its early years.

The involvement appeared to stretch even to routine issues such as technology used at the firm. In an e-mail dated 20 December 2006, a person called Jayesh Shah writes to both Vadera and Doshi, forwarding a proposal for software for the organization.

A document dated 2 November 2009 shows that FIG made an offer to buy out 100% of Jermyn Capital Partners. The deal, however, was not concluded due to pending regulatory issues in India. According to a person familiar with the matter who asked not to be identified, FIG subsequently bought the brokerage and investment banking divisions of Jermyn Capital Partners.

The interactions between Doshi and the Vaderas appears to go further.

On the website of a charity run by Doshi called Shrimad Rajchandra Mission, Madhavi Vadera is shown as a donor. Against a donation amount of Rs.26,265 is this message: “Don’t know how you fit it all in—I guess that’s spirituality in action! Rupin and Madhavi.”

Incidentally, the list of donors on the website also includes Umang Kejriwal, promoter of Electrosteel Steels.

Did Doshi continue to deal in Indian securities through First International Group?

The involvement of Doshi in the affairs of FIG could suggest that he continued to dabble in the Indian markets, despite a Sebi ban.

In May 2015, a whistleblower wrote to Sebi, alleging just this.

“This is with reference to FII First International Group Plc with FII registration number no INUKFD191808 and their sub accounts Orange Mauritius Investment Ltd and Asia Advantage Ltd. First International Group Plc has acquired Orbit investments securities services Plc (formerly known as Jermyn Capital Partners Plc) in 2010 and has been directly and indirectly controlled by Mr. Dharmesh Doshi,” said the letter addressed to Sebi’s division of foreign institutional investors and custodians. Mint has a copy of the letter.

The letter goes on to allege that FIG and Vadera are involved in insider trading and stock manipulation in collusion with the promoters and directors of a number of companies. Mint is not disclosing the names of the entities mentioned in the letter as it has no independent confirmation of any linkages between FIG and the promoters of these entities.

“I request Sebi to investigate the above matter as it related to total violation of market regulation and Indian laws,” wrote the whistleblower.

An email sent to a Sebi spokesperson on Thursday did not elicit a response.

A Sebi official said the matter was under investigation by the regulator.

“If post the initial investigation, there are enough facts collected of possible Sebi Act violations, the Office of International Affairs (OIA) would be alerted. OIA will seek information from the concerned regulator for further action,” said the official on condition of anonymity.

Sebi’s Office of International Affairs acts as a central facilitation cell for overseas entities having regulatory issues and concerns relating to Indian securities markets.

A person familiar with the way Sebi deals with such issues, and who asked not to be identified, said that the layering of ultimate beneficiaries of FIG may be a matter of concern. It raises the possibility of whether the funds invested in India could be from Doshi, this person explained.

Sebi would need to write to the UK FSA to understand the linkages between FIG and Doshi, if any, this person said. In addition it would also need details of the sub-accounts through which FIG operates in India, he added.

Sebi won’t find it easy to do this, said R.S. Loona, ex-executive director, Sebi. Foreign investors, while investing through ODIs (offshore derivative instruments) or P-notes in India, are known to sometimes create such structures that Sebi can find it hard to pinpoint the ultimate beneficiary.

“The rules for ODIs have been tightened recently (through the latest amendment in 2014) so FIG, which was set up in 2006, could have escaped scrutiny. Under new rules Sebi can seek details of ultimate beneficiaries of registered sub-accounts,” said Loona.

First International Group’s previous dealings with Electrosteel

Documents accessed by Mint also show past dealings between Jermyn Capital Partners and the Electrosteel Group. They also show that FIG held shares in Electrosteel Castings in 2009.

In a 1 October 2007 letter addressed to N.C. Bhal of Electrosteel, then known as Electrosteel Integrated Ltd, Jermyn Capital Partners Plc. proposed to provide exclusive financial advisory services and act as a placement agent for a planned $75 million private equity fund raising.

In May 2010, Electrosteel Integrated was rechristened as Electrosteel Steels.

On 9 March 2009, Jermyn Capital Partners and an official at the Electrosteel group named Virendra Agrawal communicated on an FCCB (foreign currency convertible bonds) buyback plan.

An email and a portfolio filing by FIG show that the company held shares in Electrosteel Castings, which is the promoter entity of Electrosteel Steels.

In a 10 February 2009 e-mail, Ankur Shroff, an investment analyst in the securities division of FIG, informed Vadera that Orange Mauritius, the sub-account through which FIG operates, had purchased 8 million shares of Electrosteel.

A portfolio filing from FIG with a valuation date of 31 January 2009 shows that FIG held Electrosteel Castings shares valued at about $2.45 million.

Jermyn and FIG’s past dealing with the Electrosteel group could become a relevant input into the pending decision on the sale of Electrosteel Steels to FIG, since the Reserve Bank of India has asked banks to ensure that there are no links between the buyer of a stressed asset and its original promoters.

Arundhati Bhattacharya, chairperson of State Bank of India, which heads the consortium of lenders to Electrosteel Steels, did not respond to an e-mail seeking comment.

Bankers must exercise due caution while working with potential buyers of stressed assets, said an expert.

“In its most recent guidelines on SDR, the regulator has stated very clearly that banks are required to do additional due diligence on the new buyers and establish that they are not related or are associates of the current promoter group. The onus of finding out all possible details about the buyer remains with the banks. They must consider any red flags which are raised in respect of a potential buyer and should be cautious in who they are dealing with,” said Dinkar V., partner, transaction advisory services, at global consulting firm EY.

Dinkar, who also heads the restructuring and stressed asset turnaround unit of EY, was not commenting on the Electrosteel case in particular.