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India’s top court ordered Sahara group, the owner of New York’s Plaza Hotel, to repay 174 billion rupees ($3 billion) of bonds after finding the company guilty of flouting debt-sale rules.
The Supreme Court yesterday asked Sahara Commodity Services Corp. and Sahara Housing Investment Corp. to return, within 10 days, money raised selling optionally fully convertible debentures. India’s market regulator last year said the debt issue didn’t comply with public sale rules.
The verdict may hamper the expansion plans of the closely held group of companies, said Jagannadham Thunuguntla, chief strategist at SMC Global Securities Ltd. (GLBS) Sahara led by Subroto Roy, who oversees businesses from film production to mortgage lending and has assets valued at 500 billion rupees, in 2010 bought London’s Grosvenor House and in July bought a controlling stake in New York’s Plaza Hotel.
“It will be challenging times for the group,” Thunuguntla said. “They may need to shelve their expansion plans in retail and housing businesses for the next couple of years.”
Shares of the group’s publicly traded companies fell. Sahara Housingfina Corp. (SHFC), a mortgage lender, dropped 3.3 percent to 78.7 rupees in Mumbai yesterday, its lowest in more than six months. Sahara One Media & Entertainment Ltd. (SHRA) fell 0.7 percent to 103.4 rupees.
Judges K.S. Radhakrishnan and J.S. Khehar in their ruling yesterday named retired judge B.N. Agrawal to oversee the refund process. Sahara is “healthy” and will not delay payments to investors, it said in an e-mailed statement on Aug. 31.
The court also authorized the Securities & Exchange Board of India, the market regulator, to seize the group’s assets should it fail to repay bondholders. Sahara, the main sponsors of India’s cricket team, will also have to pay interest that amounts to 7 billion rupees, according to Arvind Dattar, a lawyer representing investors.
“This verdict protects the interest of investors in the market,” said SEBI’s lawyer Pratap Venugopal.
The process of repaying investors will have to be completed in three months, according to the judgment. The group will have to pay 15 percent interest on the debt, the judges said. SEBI on Nov. 24, 2010 restrained the companies from selling the bonds after “persistent refusal” to provide details, according to a notice on the regulator’s website.
Sahara said last month it will spend 30 billion rupees on building retail operations to sell food and household products direct to homes.
Roy started his business in the late 1970s from Gorakhpur, a town in the northern state of Uttar Pradesh with a capital of 2,000 rupees and three employees, according to its website. It now has assets worth over 500 billion rupees spread across 32 businesses, the company said.
The group also has 33,633 acres (136 million square meters) of land spread across India. It owns the 10,600-acre Aamby Valley city, a three-hour drive from Mumbai, where it has built holiday homes for the rich. Sahara bought a 42.5 percent stake in the Force India Formula One team for $100 million from billionaire Vijay Mallya in October and owns the Indian Premier League’s Pune Warriors cricket team.
Yesterday’s judgment isn’t the first where the group was asked to refund money.
The group’s financial services company Sahara India Financial Corp. was barred by India’s central bank from taking deposits. In 2008, the Reserve Bank of India banned the Lucknow, India-based Sahara from accepting deposits and ordered it to repay investors by 2015 after the company failed to pay the minimum interest rate and meet investment rules. The company was asked to cut deposits by 40 percent to 90 billion rupees by June 2011 according to the Reserve Bank.
In response to the central bank order, Sahara said it will repay investors four years before the deadline stipulated by the central bank. The company said it will repay 730 billion rupees to depositors by December, according to an advertisement in the Times of India on Aug. 31, 2011. There have been no announcements on the repayment from the company since.
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