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Margadarsi: Response to Rangachary report by Ramoji Rao-HUF

Special Correspondent

HYDERABAD: Ramoji Rao-HUF, of which Margadarsi Financiers is a unit, has asserted strongly that it is in a position to meet substantial commitments to its depositors by just divesting 26 per cent shareholding in a group concern to the U.S.-based investment company, the Blackstone group, and part financing from banks.

"This world-renowned company had come forward to invest Rs. 1217 crore while banks were ready to advance Rs 850 crore in Ushodaya Enterprises Limited after due diligence and evaluation by reputed firms. This clearly showed as false the tall claims of the N. Rangachary committee that the shares of the (Eenadu) group's concerns were not readily marketable." In fact, Blackstone had approved only two proposals, including that of Ushodaya, out of the 250 proposals it received in India. However, the Rangachary report chose to ignore this well-publicised deal, Ramoji Rao-HUF said in response to The Hindu's request for comments on the Rangachary report.

At the outset, the detailed reponse noted that the 15-page order was ambiguous on the provisions of law under which the committee was constituted. Moreover, an order dated "December 14, 2007" had been issued on February 19, 2007 indicating the committee's haste and callousness. The Rangachary report is full of "inconsistencies, factual errors and contradictions," according to the response. "The order of the committee has been obviously tailored to suit the ill-motivated designs of the political masters," the Ramoji Rao-HUF said.

It said that in spite of the "objectionable remarks in the order," the group enjoyed very high credibility among the public, evident from the fact that the "vilification campaign against it for over 100 days had been ignored." There was never an instance of a single default in payment of interest and principal to the depositors in 34 years of Margadarsi's existence.

Taking serious exception to the Rangachary report's "wild conclusion" that Margadarsi Financiers could repay only 49 paise in a rupee to the depositors, the Ramoji Rao-HUF said this estimate was "grossly fallacious" and aimed at creating panic in their minds. The market value of just one of the group companies as evaluated by a leading international firm stood at above Rs. 4,690 crore, much higher than the commitments.

Ramoji Rao-HUF ridiculed the observation that more than 75 per cent of the deposits during the year were used to meet current losses and that fresh borrowings were used to repay earlier ones. This betrayed a lack of elementary knowledge of the nature of business of Margadarsi Financiers and its application of funds, the response said.

Apart from Margadarsi Financiers, the HUF ran several businesses and owned over 99 per cent shares in large group concerns, including Ushodaya (which runs Eenadu daily and ETV news channels), Priya Foods, Margadarsi Chit Funds (the largest chit fund company in India with an annual turnover of over Rs. 3,000 crore), Usha Kiron Movies, which runs the largest integrated film city in the world, and other highly successful ventures.

According to the response, virtually all the entities in the groups were doing very well with Dolphin Hotels and Margadarsi Chit Funds making profits consistently. The businesses of group concerns, apart from landed properties, had huge market value and far in excess of liabilities. The Rangachary report had overlooked these facts and assumed that Ushodaya Enterprises would continue to make losses. "It had not bothered to examine the financial resources, strengths, assets and liabilities of the group concerns, other than Margadarsi Financiers," the response noted.

Ramoji Rao-HUF challenged the report's contention that it was qualified to be treated as a financial establishment under the Andhra Pradesh Protection of Depositors of Financial Establishments Act, 1999 and that the government was empowered to attach any property on default. The Act clearly defined the financial establishment to mean "person or group of individuals." Thus, the HUF was totally outside the scope and ambit of the Act.

The Ramoji Rao-HUF response made another interesting point: the Rangachary report "conveniently failed to note that the depositors of Margadarsi Financiers, in case of failure of the organisation to repay any of the desposits or interest thereon, have recourse to the net assets of the entire Ramoji Rao-HUF (which are far in excess of the deposits in Margadarsi Financiencers) and not merely the assets relating to Margadarsi Financiers."

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