Aidqua Holdings (Mauritius) Inc, a private equity investor in New Tirupur Area Development Corporation Limited (NTADCL), has written to Chief Minister M.K. Stalin and Finance Minister Palanivel Thiaga Rajan, alleging the siphoning of funds by Infrastructure Leasing and Financial Services Limited (IL&FS), a major shareholder in the company. It has also sought an audit by the Comptroller and Auditor General (CAG) and other regulatory bodies.
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Incorporated in 1995, NTADCL is a public-private partnership that provides water services on commercial terms. It is the first private water supply and sanitation project and one of the largest private investments in urban infrastructure in the country.
Aidqua has, for long, objected to the deductions made by IL&FS while disbursing money to the project, as well as NTADCL’s corporate debt restructuring proposal.
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NTADCL was formed as a special purpose company to develop infrastructure in Tiruppur city. In 2000, Tamil Nadu Water Investment Company Ltd (TWIC) was formed as a promoter company to route all investments into NTADCL. The Government of Tamil Nadu owns a 46% stake and IL&FS 54% in Tamil Nadu Water Investment Company Ltd.
In 2000, a concession agreement was signed among the Tamil Nadu government, NTADCL and Tirupur City Municipal Corporation (TCMC).
As per the agreement, NTADCL was allowed to draw water from the Cauvery basin with a capacity of 185 million litres per day, which was expandable up to 250 million litres per day.
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The project cost was estimated at ₹1,023 crore, and financial closure was done in March 2002. It was expected that the project would recover its debt and equity investments primarily from the sale of water to industries, at 115 million litres per day.
The project cost was proposed to be met through an equity contribution of ₹322.70 crore, debt of ₹613.80 crore and subordinate loan of ₹86.50 crore from TWIC.
TWIC invested about ₹105 crore as equity in NTADCL, of which the State government contributed ₹55 crore and IL&FS put in ₹50 crore, in proportion to their shareholding in TWIC. This gave TWIC a 32.54% stake in NTADCL.
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In 2003, Aidqua invested ₹90 crore in NTADCL for a shareholding of 27%. The remaining shareholding was from Life Insurance Corporation of India, Mahindra & Mahindra and others.
The debt of ₹613.80 crore was arranged from various banks, with IDBI Bank as the lead lending institution. Out of this, IL&FS was supposed to bring in ₹180 crore as debt.
Out of the ₹180 crore, IL&FS raised ₹90 crore from the U.S. Agency for International Development (USAID).
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IL&FS pegged its gross disbursement at ₹140 crore, comprising ₹35 crore as equity, ₹15 crore towards subordinate debt and ₹90 crore towards senior debt.
Out of the gross disbursement of ₹140 crore, IL&FS deducted about ₹41.23 crore towards various expenses and transferred the rest to NTADCL.
Aidqua objected to the deductions and challenged them before the National Company Law Tribunal (NCLT), Chennai.
Meanwhile, NTADCL has also made a claim of ₹116.20 crore before NCLT, Mumbai, against IL&FS for the deductions.
NTADCL has also written to Grant Thornton India, claims management advisor of IL&FS, stating that the question of whether the deduction was made with or without proper approval is the subject matter of legal proceedings.
The project had also faced challenges, as industrial demand did not cross a third of the expected industrial off-take, which was also affected by the Madras High Court ruling on pollution discharge by dyeing units around Tiruppur. With mounting losses and eroding net worth in 2010-11, the company found it difficult to service its principal debt repayment schedule as originally envisaged. As a result, the company went in for a corporate debt restructuring (CDR). As part of the CDR, the Tamil Nadu government infused ₹150 crore into NTADCL. Post-CDR, Aidqua’s stake came down to 15%.
Aidqua had challenged the CDR before the erstwhile Company Law Board (CLB). The CLB overruled the objection and allowed the CDR. The CLB ruling was contested in the Madras High Court, which wanted the State to notify the prohibition on the usage of groundwater for industrial purposes as envisaged by the concession agreement, before implementing the CDR.
Aidqua has challenged the CDR before the Supreme Court, and the case has been pending, on the grounds of it not being compliant with the Companies Act and NTADCL’s articles of association.
In its letter to the Chief Minister and the Finance Minister, Aidqua cited the White Paper on the State’s finances, released in August 2021, which highlighted the problems in the water sector. It also pointed out that NTADCL could have become a marquee company in the water sector. Aidqua alleged that despite pending court cases, monies had been taken from NTADCL without authority, which it had pointed out in board meetings.
“We believe NTADCL should have been a shining example of what it means for foreign and domestic investors to partner with the Government of Tamil Nadu. By bringing about reforms, such as cutting costs and raising prices, as well as being vigilant in the movement of funds, NTADCL can still achieve its intended objectives,” it noted.