Auditors pick holes in Ispat Ind’s balance sheet

India Inc is not lagging behind in producing financial statements with gaping holes. The auditors of Ispat Industries, belonging to the Mitt...

India Inc is not lagging behind in producing financial statements with gaping holes. The auditors of Ispat Industries, belonging to the Mittals, have qualified the balance sheet of the company over non-repayment of loans and the terms and conditions of various advances for the year ended March 2002.

SR Batliboi & Co, the auditors of Ispat accounts, said ‘the rate of interest and other terms and conditions on which loans/advances have been granted to companies……. are prima facie prejudicial to the interest of the company in view of non-receipt of principal/interest amounts as per stipulated terms’. According to the company, inter corporate deposits (ICDs), discounted bills etc, aggregating Rs 99.38 crore have become overdue for payment and efforts are being made for their recovery. ‘The company as well as its promoters had given an undertaking to FIs to recover the ICDs but no significant recovery has been made during the year,’ the company admitted in the balance sheet.

‘The settlement amount of Rs 95 crore due from Ispat Profile, pending an approval from FIs, could not be secured by a second charge on the fixed assets of Ispat Profile.’ It has also written off Rs 62.96 crore project promotional expenditure incurred on Central India Coal Co and Central India Power Co since this fund is no longer considered recoverable.

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Says the auditor, ‘the company, having defaulted in repayment of bonds, has attracted the provisions of Section 274(1)(g) of the Companies Act. However, the company has obtained an order from the Kolkata High Court restraining the applicability of the provision for the time being’. It may be recalled that Euro bonds worth Rs 596.87 crore issued by the company in 1994 had become due for redemption on April 1, 2001.

In another observation, Batliboi said ‘regarding the non-provision of the shortfall of Rs 26.69 crore in the value of certain quoted/unquoted investments… the impact on the company’s loss is not presently ascertainable. Regarding pending reconciliation of accounts with certain financial institutions, accounting of interest on term loans at reduced rates in terms of the approved restructuring package and non-provision of interest of Rs 56.68 crore on certain loans which are pending for conversion into equity/preference shares due to non-completion of necessary conditions…. the impact is not presently ascertainable.’

As per the restructuring package, the equity capital of the company would be reduced by 50 per cent and 0.0001 per cent cumulative redeemable preference shares will be issued for the amount reduced. Further, term loans from FIs and banks amounting to Rs 510 crore will be converted into equity capital of Rs 310 crore and non-cumulative convertible preference shares of Rs 200 crore. When contacted, the official spokesperson refused to comment on auditor’s report. However, Ispat admitted the loan defaults in the balance sheet. ‘Due to sluggish market conditions in the steel industry, the company has not been able to repay certain loans as per the stipulated repayment schedule.’ The company’s total loan liability is Rs 6,764.89 crore as on March 2002. Of this, secured loans amount to Rs 5,836.03 crore.