Money Matters aided 4 builders raise Rs 5,000 crore!

Money Matters Financial Services, whose managing director and two top executives were arrested by the Central Bureau of Investigation in relation to real estate scam, did a debt syndication for at least four real estate companies to the tune of Rs 5,300 crore (Rs 53 billion) since April 2008, an analyst report said.

Mumbai-based DB Realty did a loan syndication of Rs 188 crore (Rs 1.88 billion) in March 2010, Noida-based Jaypee Infratech raised around Rs 3,700 crore (Rs 37 billion) in January this year, Mumbai-based HDIL raised Rs 850 crore (Rs 8.50 billion) in June 2008 and Delhi-based Emaar MGF another Rs 600 crore (Rs 6 billion) in April 2008, a report from Ambit Capital said, citing the annual report and website of Money Matters.

In an emailed response, N Shridhar, group director (strategy & finance) said D B Realty applied for debt syndication of Rs 200 crore (Rs 2 billion) in December 2009 that was sanctioned in January 2010 and disbursed in March 2010.

HDIL, the country's third largest developer, raised the money through non-convertible debentures from Life Insurance Corporation of India and others banks through Money Matters. It is not known from whom other realty developers raised money.

Property developers such as Anant Raj, HDIL, Indiabulls Real Estate and others have raised loans from banks such as Bank of India, Central Bank and Punjab National Bank whose officials have involved in the scam, the report said.

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Mumbai-based Orbit Corporation has a sanction of Rs 250 crore (Rs 2.50 billion) from LIC Housing Finance, which is in the centre of realty scam. Out of this, Orbit has availed Rs 150 crore (Rs 1.50 billion), a company executive said.

Ambit said debt refinancing/restructuring would go through increased scrutiny and required asset security would go up. "This will result in delay in refinancing and push up the cost of borrowing," it said.

ICICI Direct.com has urged its clients to lower their exposure to the realty stocks by 50 per cent in the aftermath of the scam. But some brokerages like CLSA said the perceived concentration of risk in real estate is not as high as perceived.

Quoting FY 2010 annual report of Money Matters, CLSA said Money Matters' 30 per cent of the debt syndication deals were in infrastructure sector, 23 per cent in power sector and remaining to real estate and financial institutions.

In a notice to stock exchanges, Money Matters said the company is fully co-operating with the investigative agency and in the legal proceedings. The company has called a board meeting on Friday to discuss the matter in detail and to decide upon the further course of action. 

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Public sector lender Bank of India plans to investigate the bribery scandal in depth and find if more officials could be involved, even as several other bank officials put up a brave face saying such incidents are sporadic and isolated and the issue is not leading to a systemic problem.

"The risk management of the bank will be further strengthened," said Alok Misra, Chairman of Bank of India. "We will study the episode in depth and see if more bank officials were involved."

The CEO of LIC Housing Finance R R Nair, the Life Insurance Corporation's secretary (investments), an independent director of the Central Bank of India, a deputy general manager with Punjab National Bank and a Chennai-based General Manager of Bank of India were among eight arrested by the Central Bureau of Investigation (CBI) late on November 23.

The officials were alleged to have accepted illegal gratification, mostly as bribes, according to the CBI. Three officials of Money Matters Financial Service, who acted as facilitators for loan seekers and allegedly bribed officials, were also arrested.

While several loans went to property companies, firms from other sectors too got loans from the banks and financial institutions thus named.

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Bank of India has separated its loan sourcing and loan sanctioning functions, Misra told a television news channel. The Reserve Bank of India and the government would want a report on the episode, he said.

About 3.2 per cent of its loans went to real estate sector and 3.3 per cent of that were non-performing, he said. "We will be reviewing our systems," said S Sridhar, chairman and managing director of Central Bank of India. "We are always looking to make changes whether with respect to customers or technology."

It is not a systemic issue and there are lakhs of loans given out each year, State Bank of India Chairman Om Prakash Bhatt told reporters.

Bank of India gave loans BGR Energy, OPG Power and Ashapura Minechem. Loans to BGR Energy is satisfactory, while Ashapura Minechem is an account with Bank of India for over 40 years and loan to OPG Power was yet to be sanctioned, the bank said separately in a statement.

"This incident involves an alleged misconduct of an individual, the bank said. "The bank has a proper structure for sanctioning loans, which is duly observed and the asset quality continues to be good."

In case of Central Bank of India, the official involved was an independent director. Sridhar said he was yet to crystallise his thoughts on if he would ask for changes with respect to appointment of independent directors.

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The bribery scandal could be a turning point for LIC Housing Finance, which has the solid backing from the Life Insurance Corporation, its biggest shareholder and the nation's biggest life insurer.

The Central Bureau of Investigation (CBI) alleged that the lender's chief executive officer R R Nair took bribe from an official of Money Matters Financial Services and showed undue favour its clients including DB Realty and Mantri Realty.

The allegations, if proven correct, could dent the company's ambition of turning itself into a commercial bank, say analysts.

Life Insurance Corporation and its unit LIC Housing Finance were both confident they had a chance better than any other institution to get a licence for a new private sector bank when the Reserve Bank of India begins giving them out next year. 

The company, though, still has time to come out clean as the RBI may not come out with its final guidelines until first quarter of 2011.

The Life Insurance Corporation has already begun damage control announcing its intention to appoint a new chief executive in two days in place of R R Nair.

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Nair joined LIC in 1977 and worked his way across life insurance, mutual fund and housing finance. He was LIC's country head in Mauritius 1997-2001 and was deputed to set up a joint venture insurance company at Riyadh in 2005-2007, until he took over as the chief executive of LIC Housing in April 2008.

LIC Housing Finance was set up in 1989 and is 36.54 per cent owned by Life Insurance Corporation of India, and about 42 per cent by Foreign Institutional Investors.

The mortgage lender was the half a century old insurer's answer to Housing Development Finance Corp's success in serving a growing and large segment of middle class individuals that needed loans to buy house. on Thursday, the lender is the second biggest finance company after HDFC and the fourth biggest if one includes banks such as State Bank of India and ICICI Bank Ltd.

From April 2008, around the time when Nair joined the company until now LICHF's loan disbursals rose to Rs 14,853 crore (Rs 148.53 billion) from Rs 8,762 crore (Rs 87.62 billion) and in the first half of the current fiscal, disbursements rose to Rs 8,493 crore (Rs 84.93 billion). The lender had little impact of the economic slowdown.

From April 2008 until now, its outstanding loans grew to Rs 43,385 crore (Rs 433.85 billion) from Rs 27,679 crore (Rs 276.79 billion), while trimming non-performing assets (NPAs) to 0.74 per cent from 1. 07 per cent. Net profit in the first half of 2010-11 rose to Rs 446 crore (Rs 4.46 billion) compared with 2008-09 full year Rs 531 crore (Rs 5.31 billion).

Its performance has support of its investors as reflected in almost six times rise in its share prices to Rs 1,053.8 on Thursday from Rs 188 in March 2009.