Thanks to the revelation from blogger Phillip Ang (‘GIC should stop throwing CPF, reserves at unprofitable Indian infrastructure investments‘, 1 Oct), it was reported that Singapore GIC, which manages CPF monies indirectly, has invested in an Indian infrastructure company, Gayatri Projects Ltd.
According to a media report from India three years ago, GIC acquired 6.2 per cent stake in Gayatri Projects through a block deal. The company focuses on road, industrial and power projects. GIC brought 11 million shares at a price of Rs150 per share, valuing the deal at Rs1.65 billion (‘Government of Singapore Investment Corp acquires 6.2 per cent stake in Gayatri Projects‘, 6 Jul 2017).
Company’s credit rating downgraded
Last Nov, India’s Credit Analysis & Research (CARE) downgraded the credit rating of Gayatri Projects from “BB+” to “D” after the company delayed its debt servicing obligations.
In a press release, CARE said, “The revision in the ratings assigned to the bank facilities of Gayatri Projects is on account of stretched liquidity position of the company due to delays in receipt of receivables leading to cash flow mismatch resulting in delays in debt servicing.”
By Feb this year, news of loan defaults by Gayatri Projects were appearing. For example, in Feb, it defaulted on Rs13.7 million payable to a finance company. The total amount of outstanding borrowings from banks and financial institutions stood at Rs18.9 billion in Feb.
By early Mar, Gayatri Projects reported that it had a total loan defaults of Rs197 million. The amount came from 13 outstanding loans owing to the various banks and financial institutions. The company made a total loss of Rs3.9 billion in the last FY ended in Mar this year.
Share price plunges
Before news of the bad rating emerged, the share price of Gayatri Projects was already going below Rs150 around last Jul. With the bad rating, the share price of Gayatri Projects plunged even further in Nov last year, going from Rs130 to around Rs60. Early this year with news of loan defaults, the share price plunged even more. Its share price is now trading at around Rs18.
In an article published by Dalal Street Investment Journal (DSIJ) in Feb this year, it commented that Gayatri Projects has been one of the “massive wealth destructor” for its shareholders in the past one year. Its market cap eroded from the top of Rs35 billion to around Rs4.7 billion in Feb. Today, its marker cap languishes at Rs3.3 billion.
“The primary reason behind such wealth destruction is the company’s poor financial performance that has led to a default in its debts,” said DSIJ.
Most worrying is that DSIJ said the company has a “large related-party transaction”, which always remain a big concern and is also a key red flag. DSIJ noted that in FY2019, the company has given a loan of Rs1.3 billion to its subsidiary and Rs103 million to an associate that falls under related-party transactions.
“In terms of contingent liabilities, the company has given a corporate guarantee to its subsidiary, associate and also to the companies where key managerial personal have an interest, totaling to nearly Rs 2,738 crore (Rs27.4 billion), which is clearly a big cause of concern,” DSIJ added.
“According to auditor’s report, the company has given an irrevocable and unconditional corporate guarantee to a subsidiary of associate company that has defaulted in the repayment of dues to the lenders, which raise a big question on corporate governance on the part of the company.”
“This wealth destruction suffered by investors was completely avoidable, if an investor had tick-marked on the common checklist before investing in the shares of any company,” DSIJ concluded.
GIC owns 7.15% of Gayatri Projects
According to MarketScreener.com, GIC currently still holds shares in Gayatri Projects. It’s the 4th largest investor with a shareholding of 13,390,138 shares or 7.15%.
With a current market cap of Rs3,295 million, GIC’s shareholding in Gayatri Projects is worth about Rs236 million, much lower than Rs1.65 billion when it first invested in Gayatri Projects 3 years ago.
In any case, on the Singapore government website, it said that GIC manages the proceeds from the Special Singapore Government Securities (SSGS) that are issued and guaranteed by the government, which the CPF Board has invested in with the CPF monies.
So while the CPF monies are not directly transferred to GIC for management, one of the sources of funds for the government’s assets managed by GIC is the proceeds from SSGS. That is to say, GIC borrows from Singaporeans’ CPF monies to invest in, for example, companies like Indian infrastructure company, Gayatri Projects.