Sahara debate reinforces one thing...

Tue, 4 Sep Pre-Open

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It would not be entirely wrong to say that the Sahara Group has been in the news more so for the wrong reasons. The latest development adds to the group's list of controversies. It is related to two Sahara group companies - Sahara India Real Estate Corporation Ltd. (SIRECL) and the Sahara Housing Investment Corporation Ltd. (SHICL) - being asked to refund a massive sum of Rs 244 bn to their 22.1 m investors. Adding salt to the wound, the Supreme Court has asked these two companies to do so with an interest rate of 15% from the date of receipt (two red herring prospectuses - one in March 2008 and the other in October 2009) of the subscription amount till the date of repayment. The reason for the same is the accuracy and the genuineness of the investors' information and the support documents provided by the group companies.

These sums were collected through the optimally fully convertible debentures (OFCDs) by way of bonds. According to the Securities and Exchange Board of India (SEBI) order and court proceedings, SIRECL is believed to have collected a sum of about Rs 194 bn from 6.6 m subscribers in March 2008. A quick calculation shows that investors - apparently villagers and people from rural India - on an average lent the company over Rs 29,300 in this offer alone. Taking an average both the schemes together, the average comes to nearly Rs 11,040 per investor.

However, it is the genuineness of the information that is being brought under the scanner by SEBI. SEBI's views may also seem to be based on the fact that under the NREGA, the total amount spent in 2008 was about Rs 159 bn. So, it basically comes down to how the group managed to get people to invest such a large amount in its schemes.

It must be kept in mind that Sahara - being the key sponsor of the Indian cricket and hockey teams - would be a household name across India. And due to its brand positioning, it would have not been difficult for the group to get investors to invest in its offer schemes.

Following the court order, Sahara assured its investors their money is safe. "We want to inform all our depositors and investors that you need not worry about anything ..." it said. The group also added that in the past 33 years, it had repaid around Rs 1.4 trillion in redemption to around 120 m investors.

Nevertheless, with such data unveiling, discussions relating to how rich Rural India is have started to emerge (provided the data is genuine and accurate). Comparisons to India's largest ever IPO - the Rs 155 bn Coal India IPO are also being made. The key question here is whether this development will have a role to play in reinforcing India's growth and consumption story in the long run.