Indiabulls restructured: Gehlaut retains realty biz

To impart greater focus and accountability at the top leadership level and to rationalize operations of the diverse and disparate business verticals of the Indiabulls group, its three promoters, Sameer Gehlaut, Rajiv Rattan and Saurabh Mittal have mutually decided to reorganize management control of the different group companies, amongst themselves. Mr. Gehlaut will retain control over the flagship housing finance business – Indiabulls Housing Finance Limited (IBHFL); the real estate business – Indiabulls Real Estate Limited (IBREL); the securities business – Indiabulls Securities Limited (ISL) and the wholesale services business – Indiabulls Wholesale Services Limited (IBWSL). Mr. Rajiv Rattan and Mr. Saurabh Mittal will relinquish all control, management and oversight in these businesses.

This reorganization exercise is a part of the ongoing efforts to further institutionalize Indiabulls Housing Finance Limited (IBHFL), the flagship company of Indiabulls Group and India’s second largest housing finance company (HFC) in the private sector.  This reorganization is in addition to the proposed induction of Dr K. C. Chakrabarty, former Deputy Governor of the Reserve Bank of India and Mr. R. M. Malla, former Chairman of IDBI Bank. The two promoters Saurabh Mittal and Rajiv Rattan have decided to step down from the Board of Directors of IBHFL.

The Board of IBHFL wants to delink ownership from management and has decided to elevate the current CEO, Gagan Banga as the Vice Chairman and Managing Director of the company. This added responsibility is a step forward toward greater professionalism of the Board and indicates the strong intent of the promoters to empower, with accountability, the top echelons of the management team.

IBHFL is the country’s second largest housing finance company in the private sector and the Board felt that the induction of experienced financial markets experts will enable the Board to better handle the complexities which come with size, and also enable effective risk management as the company strives to continue to grow at 25%.  IBHFL reported profits of Rs. 1,569 Cr in FY 2013-14. IBHFL has been growing at CAGR of 26% over the last 6 years and closed FY 2013-14 with a balance sheet size of Rs. 44,418 Crs. Indiabulls Group paid out Rs. 1,200 Crores as dividends last year and was ranked 10th amongst all Indian Private Corporate Houses for dividend payouts in FY14.

The reorganization exercise amongst the promoters will also allow IBHFL to be completely ring-fenced from the Power Business. Mr. Rajiv Rattan and Mr. Saurabh Mittal will control and supervise the Power business and Mr. Gehlaut will relinquish all control, management and supervisions rights of the Power Business. The businesses not controlled by Mr. Gehlaut viz. Indiabulls Power Limited (IPL) and Indiabulls Infrastructure and Power Limited (IIPL), will change their names and delete reference of ‘Indiabulls’ within their names.

This reorganization will bear very positive results for IBHFL as it strives to grow in size and stature and will empower the board to effectively govern through the presence of four executive and four knowledgeable independent directors. The reorganization will also enable the group to continue with its efforts of ring-fencing IBHFL from contagion risks of any other business besides bringing in specialized focus towards the real estate business and power business.

This amicable reorganization exercise will enable all three young entrepreneurs to focus on their areas of expertise, consolidate their shareholding of the companies they want to run on a long-term basis and continue to maximize shareholder value.

For IBHFL this is a key development, as a large and systemically important financial institution it is vital that the company maintains the highest standards of corporate governance. It is important that the board is comprised of people with demonstrated skill sets and relevant experience that actively involve themselves in risk management and strategic planning. Over the course of the last few years, large financial services companies are de-linking the role of their owners, who are the Non-Executive Directors of the Company from management and control of the operations of the Company. It is toward this end that IBHFL has  inducted eminent bankers such as former Deputy Governor of RBI, Dr. K. C. Chakrabarty and former Chairman and MD of IDBI Bank, MR. R. M. Malla as independent directors subject to shareholders’ approval in the ninth AGM to be held in August. With coming on board of such distinguished stalwarts, not only will IBHFL benefit from their intellectual leadership, but it will also strengthen corporate governance befitting an institution of IBHFL’s size and scale.

With the steady growth of IBHFL across all business parameters, the balance sheet of the company has expanded to amongst the largest in the Housing Finance business. The realignment of promoter control, the induction of independent directors and the empowerment of the company’s management have set the company firmly on the path to be a large financial institution that is independently managed and run with the highest standards of corporate governance.

Diageo makes irresistible open offer to United Spirits share holders

MUMBAI: Diageo plc  has launched a tender offer to the public shareholders of United Spirits Limited (“USL”) to acquire up to 37,785,214 shares in USL, which represents 26% of USL's fully diluted issued share capital as at 15 April 2014 (the “Tender Offer”).  The Tender Offer will be at a price of INR 3,030 per share and the total consideration for the increased stake (assuming take-up in full at the announced price) will be INR 114,489,198,420 (approximately £1,132,458,720).Diageo has launched the Tender Offer through Relay B.V. (“Relay”), a wholly-owned indirect subsidiary of Diageo.Relaycurrently holds 28.78% of the issued share capital of USL,acquired for a total investment of INR 65,742,163,642(£726,550,972). On completion of the Tender Offer (assuming full take-up), Relay will hold 54.78% of USL’s issued share capital and will have paid approximately INR 180,231,362,062(£1,859,009,692) for its total shareholding in USL.

In the event the Tender Offer is subscribed in full, the total consideration payable at the announced price for Diageo’s increased stake will represent a 38x multiple of USL’s EBITDA on a consolidated basis for the year ended 31 March 2013 andDiageo's total investment, of INR 180,231,362,062 (£1,859,009,692), in USL is expected to be EP positive in FY2022, the 7th full financial year after completion(assuming a12 % WACC) and EPSaccretive in the year ended 30 June 2016.

Important information:

The important information set out below comprises information regarding:

•             USL

•             The Tender Offer, including its timing

•             The Shareholders’ Agreement

•             Other important information

•             Status of proceedings in respect of the earlier USL Transaction

USL

USL is the leading spirits producer in India.On a consolidated basis, in the financial year ended 31 March 2013, USL earned net revenue of INR 105,980 million (£1,048.3 million) from operations, EBITDA of INR 13,548 million (£134.0 million) and losses after tax of INR 1,050 million(£10.4 million). USL had INR 163,849 million (£1,621 million) of total assets on a consolidated basis as at 31 March 2013.

Tender Offer

The Tender Offer will be governed by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011 (the "Regulations") and applicable law. The applicable Indian takeover regulator is the Securities and Exchange Board of India ("SEBI").

The Tender Offer will be made in accordance with the Regulations and on the terms and conditions set out in the public announcement made today in India and the detailed public statement and letter of offer that are to be released by Diageo and Relay in India.Diageoand Relayhave obtained the required competition approvals, and the completion of the Tender Offer is not conditional on receipt of any competition approvals in India or elsewhere.

The Tender Offer has been announced at the following price:

for each USL Share

INR 3,030 in cash

That price represents a premium of:

·         22.5% to the price at which Diageo last acquired USL shares on 31 January 2014; and

·         20.0% to the 60 day VWAP for USL (SEBI regulatory floor price).

Diageo will fund the consideration payable under the Tender Offer through existing cash resources and debt.

The Tender Offer is not subject to any condition regarding levels of acceptance.  Accordingly, if the Tender Offer is not subscribed in full, all USL shares tendered would, subject to the terms and conditions of the Tender Offer, be acquired by Relay. If the Tender Offer is over-subscribed, the tenderingUSL shareholders will be scaled back and entitled to sell such number of shares calculated on a pro rata basis to the shares tendered in the Tender Offer.

Further important information relating to the Tender Offer, and certain implications of the SEBI review process required to confirm its terms and conditions (including price), are set out in the “Other Important Information” section below.

Indicative Abridged Tender Offer Timetable (see note)

Public announcement	15 April 2014
Expected publication of the detailed public statement	By 23 April 2014
Expected dispatch of the letter of offer	On or around 4 June 2014
Commencement of tendering period	On or around 11 June 2014
Expiry of tendering period	On or around 24 June 2014
Settlement of consideration for accepting USL shareholders	On or around 8 July 2014

Note: The times and dates set out in the indicative abridged timetable above and mentioned throughout this announcement may be subject to adjustment, being dependent on the timing of the completion of the review process of the draft letter of offer by SEBI, regulatory approvals in India if required, and other permitted conditions to the Tender Offer. Details of any such adjustment and the new times and dates will be notified to USL shareholders by publication in relevant newspapers and will be announced on relevant stock exchanges. The times and dates are subject to the satisfaction or waiver of all applicable conditions to the Tender Offer and completion of the SEBI review process.

Shareholders’ Agreement

The shareholders’ agreement entered into on 9 November 2012 between Diageo, Relay, United Breweries (Holdings) Limited (“UBHL”) (holder of 5.93% of USL’s issued share capital as of 31 March 2014) and Kingfisher Finvest India Limited (a subsidiary of UBHL – “KFIL”)) (holder of 3.58% of USL’s issued share capital as of 4 April 2014 per a filing made by KFIL) and which took effect on 4 July 2013 as part of Diageo’s original investment in USL (the “Shareholders’ Agreement”) will remain in force following, and (other than as described below) will be unaffected by, completion of the Tender Offer.

Pursuant to the terms of the Shareholders’ Agreement, members of the UBHL group which hold USL shares are currently obliged to vote their shares at Relay’s direction.  In the event that the Tender Offer is fully subscribed such that Diageo holds, indirectly, a majority of the shares in USL, this obligation will cease.  In the event Diageo does not secure a majority of the shares in USL by virtue of the Tender Offer, the obligation on members of the UBHL group to vote their USL shares at Relay’s direction will remain in force until the earlier of the Diageo group reaching a majority position in USL and the end of the fourth full financial year of Diageo after 1 July 2014.

Other Important Information

The Tender Offer is being made under Regulation 3(2) of the Regulations, which when read together with Regulation 7(1) requires Diageo to make a minimum offer for 26% of the total shares of USL. The Tender Offer is being made in compliance with the Regulations which came into effect in October 2011, and have been further amended, including amendments made in May 2012 and March 2013.  The Regulations substantially changed the regulatory environment applicable to tender offers in India.

The terms, conditions, timetable and public documentation in relation to the Tender Offer, and the making of the Tender Offer itself, are subject to review and observations issued by SEBI.  SEBI may require changes to be made to the terms (including price), conditions, timetable, implementation and public documentation in relation to the Tender Offer and Relay would be obliged to implement such changes (subject to a right of appeal).

There is limited precedent as to how these rules might be interpreted and the nature of the observations and directions that SEBI might issue pursuant to the Regulations, both generally and specifically in relation to the terms of the Tender Offer.

Having carefully considered the Regulations and their application to the Tender Offer, Diageo believes that the terms, conditions and offer price of the Tender Offer announced today are the terms, conditions and offer price that, under the Regulations, should apply in respect of the Tender Offer.  However, it is possible that SEBI may require the terms and conditions of the Tender Offer (including price) to be modified, and it is possible that any such modifications could be material.  Prior to the commencement of the formal SEBI review process and dispatch of the letter of offer for the Tender Offer, it is not possible to assess more definitively the likelihood, effect or amount of any such potential modifications that SEBI might require.

Status of proceedings in respect of the earlier USL Transaction

As previously announced on 30 January 2014 in connection with the publication of Diageo’s interim results for the six months ended 31 December 2014, on 4 July 2013 Diageo completed its acquisition, under a share purchase agreement with various sellers (the “SPA”) of 21,767,749 shares (14.98%) in USL at a price of INR 1440 per share and for total consideration of INR 31.3 billion (£342 million), including 10,141,437 shares (6.98%) from UBHL (the “UBHL Share Sale”).

At the time of the acquisition from UBHL on 4 July 2013, the High Court of Karnataka (the “High Court”) had granted leave under sections 536 and 537 of the Indian Companies Act (the “Leave Order”) to enable the UBHL Share Sale to take place notwithstanding the continued existence of five winding-up petitions (the “Original Petitions”) that were pending against UBHL on 9 November 2012, being the date of the SPA. Additional winding-up petitions have been brought against UBHL since 9 November 2012, and the Leave Order did not extend to them. At the time of the completion of the UBHL Share Sale, the Leave Order remained subject to review on appeal. However, as stated by Diageo at the time of closing on 4 July 2013, it was considered unlikely that any appeal process in respect of the Leave Order would definitively conclude on a timely basis and, accordingly, Diageo waived the conditionality under the SPA relating to the absence of insolvency proceedings in relation to UBHL and acquired the 10,141,437 USL shares from UBHL at that time. 

Following closing of the UBHL Share Sale, appeals were filed by various petitioners in respect of the Leave Order. The Appellate Division of the High Court of Karnataka (the “Appeal Court”) gave its decision in respect of those appeals on 20 December 2013 (the “20 December Order”) in which it set aside the Leave Order.

Diageo and Relay have since filed petitions for special leave to appeal against the 20 December Order before the Supreme Court of India.  On 10 February 2014, the Supreme Court of India issued an order, inter alia, admitting the petitions and ordering that the status quo be maintained in respect of the UBHL Share Sale notwithstanding the 20 December Order.  The appeal hearing before the Supreme Court of India is currently listed to be heard on 28 April 2014.

In separate proceedings, various winding-up petitions against UBHL have been progressing in the High Court since closing of the UBHL Share Sale, with the next hearing date anticipated to be sometime in June 2014. In separate rulings issued by the High Court on 22 November 2013 and 13 December 2013, the High Court has admitted two of the winding-up petitions against UBHL. An appeal filed by UBHL against the first ruling issued on 22 November 2013 was dismissed by a division bench of the High Court on 16 December 2013, which is now the subject of a further appeal by UBHL before the Supreme Court of India. On 6 February 2014, UBHL filed an appeal before the High Court against the second ruling issued on 13 December 2013, which appeal is currently pending.

Diageo continues to believe that the acquisition price of INR 1440 paid to UBHL for the USL shares in the UBHL Share Sale is fair and reasonable as regards UBHL, UBHL's shareholders and UBHL's secured and unsecured creditors. However, adverse results for Diageo in the proceedings referred to above could, absent leave or relief in other proceedings, ultimately result in Diageo losing title to the 10,141,437 USL shares acquired from UBHL. There can be no certainty as to the outcome of the existing or any further related legal proceedings or the timeframe within which they would be concluded.

Separately, Diageo continues to pursue completion of the acquisition of an additional 3,459,090 USL shares (representing approximately 2.38% of the share capital of USL) under the SPA from the USL Benefit Trust. Currently certain lenders to USL are refusing to release security that they hold over those shares notwithstanding that they have been repaid in full. USL is taking steps, including proceedings before the High Court, to expedite the release of the security. As previously disclosed, if it is not ultimately possible to complete the acquisition in relation to these shares, they would instead continue to be held by the USL Benefit Trust subject to an undertaking that the trustees would only vote the shares at the direction of USL.

QNET dismisses charges of scam, says India operation is perfectly legal

·         Gross misrepresentation of facts, says spokesperson

·         Consumer complaint withdrawn, case closed by Oshiwara police

·         No purchase done by Gurupreet’s wife, she bounced her cheque

·         Product in question is e-learning item, not Biodisc

·         Business model is direct selling, NOT pyramid

MUMBAI, January 15, 2014: Pointing out a series of misrepresentation of facts against it, Hong Kong-based direct selling company QNET stressed that its operations across the globe, including in India, are perfectly within the parameters of law and any allegations of scam are entirely baseless.

“As a business interested in sustainability, we respect the laws of the land in any country that we operate in and ensure compliance accordingly. Wherever necessary, we even adjust our business model to suit local requirements. India is one such place where we conducted our due diligence and made the necessary adjustments so that our business model does not violate any legal provisions,” Mr Zaheer Merchant, Director of Corporate Affairs from QNET’s international headquarters in Hong Kong, said dismissing allegations of conducting an illegal business in India.

“QNet has no shell companies in India as has been alleged. We operate through a fully Indian company that has the franchisee rights to the QNet brand.” He clarified.

“QNet prides itself in having a wide range of life-enhancing products and services with a strong consumer proposition. We offer more than 30 different brands of products under nine different product categories globally. Products are sourced from international suppliers in Germany, Switzerland, Australia, South Korea, France, USA, India and many other countries, under strict guidelines and the highest quality control standards.  Wherever applicable, our products have all the necessary certifications by credible agencies from around the world,” Mr. Merchant explained.

QNet is an international direct selling company with a proud Asian heritage that was established in 1998. Today it has more than 60 lakh distributors and customers around the world with product sales in 100+ countries, 25 worldwide offices and agencies and more than 50 stockists.

In India, QNET through its franchisee Vihaan, has approximately 50,000 distributors and customers.

Commenting on the business model, Merchant explained that QNet's grass-roots business model enables ordinary people from all walks of life to start their own business with minimal overhead. With hard work and dedication, QNET distributors, known as Independent Representatives (IRs) have the opportunity to become economically self-sufficient, raising the standard of life for their families and communities.

“Internationally, direct selling is a popular business model that has generated more than USD 160 billion in revenues in 2012. With no clear legislation in India to govern this industry, we are constantly getting lumped under the Prize Chits and Money Circulation Act.  The Act bans all illegal money circulation schemes. It does not regulate the direct selling or MLM industry in any way,” he said.

“QNet operates internationally to the highest possible standards.  Strict codes of conduct exist and policies and procedures are reinforced by training so that each of our many thousand Independent Representatives [IRs] understands the rules governing product sales and abide by the ethical codes of practice we follow.  Whenever we are informed that any of our regulations have been broken we investigate these thoroughly.  In appropriate cases, stern action is taken.” He said.  

Referring to the ongoing case against it, Merchant explains: “This situation appears to be some form of orchestrated sustained attack on the company to undermine our reputation and prevent us from competing fairly and openly in India.  The manner in which an alleged unmerited claim of fraud, which itself has not and cannot be substantiated, has been used to arrest IRs and freeze assets  and simply does not bear up to scrutiny.  We are confident that as true facts emerge authorities will also see this clearly – as a calculated attack on QNet and take appropriate action against those responsible for scheming this at the first place.”

“First of all, the complaint involving one Gurupreet Singh Anand was officially closed on May 18, 2013. The complainant Gurupreet’s wife Parmeet Kaur withdrew the complaint vide a letter dated 18th May 2013 and submitted a letter to the Police Sub-Inspector of Oshiwara Police Station (in Northwest Mumbai) giving an undertaking in writing that the matter has been resolved.,”

Mr. Merchant pointed out: “Strangely, Gurpreet Singh Anand filed the same complaint, three months after the case has been closed and the complaint withdrawn, in the same police station. In an even stranger development, this matter, a consumer complaint involving an alleged transaction of Rs 30,000, was transferred to the Mumbai EOW!”  

“There are so many misrepresentations about this entire case. Gurupreet Singh claims his wife bought a biodisc, where as our records show that she ordered an e-learning course, for which no money ever was paid to the company. The cheque was stopped before it could be realized and hence the transaction was nullified. All these allegations of QNet having sold his wife a ‘cancer-curing’ product are completely false.”

Mr Merchant wondered:  “We fail to understand how Gurupreet brandishes a Biodisc on TV that he claims was bought by his wife!”.

He described as yet another gross misrepresentation, the reference to the case as a “Rs 425 crore scam”.

“QNet’s Indian franchisee, Vihaan is clearly registered with the RoC, as a direct selling / MLM / network marketing company that will promote its business in India through a network of Independent Representatives (IRs). The company has been paying all its taxes and complying with all the regulations of the government of India. In fact, all commissions payable to the IRs for product sales are paid only after TDS. All documentation has been provided to the investigators and the management of Vihaan are fully cooperating with them in this investigation. So where does the question of a ‘scam’ arise?

"It is unfortunate that the dispute involving Rs 30,000 in a nullified deal has been painted as a Rs 425 crore scam and we sincerely hope that all concerned will appreciate this factual position. Truth shall prevail," Mr Merchant added.