Growmore! Mysterious Mauritius shell firm big beneficiary of Adani Power merger deal

The case involving the purchase of 26% stake by Mauritius-based Growmore Trade and Investment Pvt Ltd in Adani Power Maharashtra Ltd (APML), an unlisted subsidiary of Adani Power Ltd, is set to take centre stage again with the Gujarat High Court reconvening after vacation.

A vacation bench of the court had granted a stay on an earlier order passed by one of its judges seeking the opinion of investigating agencies such as the Enforcement Directorate (ED), Directorate of Revenue Intelligence (DRI) and the Income Tax Department on the merger of APML with Adani Power based on a shareholder’s plea.

Growmore is just a shell company by construct, this objecting shareholder, whose name hasn’t been disclosed, had alleged. And all the shares of Growmore are held by Opal Investments Pvt Ltd, of which little is known.

According to sources tracking the case, Growmore made a foreign direct investment through the automatic route in APML’s 3,300 mw Tirora plant in 2010. The company was incorporated on September 15, 2010, with an authorised capital of 12.83 crore shares of $1 each (equivalent to Rs595 crore at that point in time at an exchange rate of 46.37/$ on that day).

Now parent Adani Power has not disclosed the amount of foreign direct investment it has received from Growmore.

Despite repeated queries, Adanis did not reveal the exact amount brought in by Growmore.

So DNA did its own calculation to make sense of the deal. Here’s how:  Back of the envelope calculations show the Mauritius-based Growmore may have had to bring in at least Rs1,050 crore for its 26% stake.

That’s because conservative project finance estimates show that it takes Rs5 crore to build 1 mw of capacity.

The APML project in Tirora is of 3,300 mw, which means it would entail an outlay of `16,500 crore at Rs5 crore per mw.

Now the standard debt-equity ratio in a power project is 75:25. Meaning, promoters have to bring in a quarter of money, or, in this case, Rs4,125 crore.

Of this, Growmore’s stake in the project is 26%.

This would mean an investment of over Rs1,050 crore (26% of Rs4,125 crore).
Now where did this money come from? Growmore’s authorised capital was just Rs595 crore, and that can’t be used to invest. More of that later.

But the matter turned controversial after Adani Power proposed a merger of APML with itself in July 2011.

By default, this meant Growmore will end up with an 8.9% stake in the merged entity based on the 1:1.6 swap ratio.

Prabal Banerjee, chief financial officer of Adani Power, told the media at that time that the agencies – Ernst & Young for valuation and ICICI Securities for giving a fairness opinion on that valuation – appointed by the company had valued Adani Power at Rs24,000 crore and APML at Rs9,000 crore as per the swap ratio.

“We have to allot about 21.3 crore shares to the Growmore owners. The total number of shares in APL is about 239 crore, which means that we have to issue 16,615 shares of APL for every 10,000 shares of Growmore, denominated at $1 per share,” Banerjee had said in a July 12 interview with CNBC-TV18.

At that valuation, Growmore’s 26% stake in APML works out to about `2,400 crore, said Banerjee.

So, after investing about Rs1,050 crore just for 10 months, the value of Growmore’s stake rocketed 128%, angering the shareholder who has objected.

Interestingly, this stake is worth only Rs807 crore because the Adani Power share price has plunged 62.23% from Rs110.50 on July 7, 2011 to Rs41.55 on Friday.

For perspective, remember, Growmore is just a shell company with no known business of its own.

When DNA asked Ameet Desai, director and spokesperson for the Adani Group, the logic behind the swap ratio, he said: “If we can tell you the logic, we could have. If you think there’s some hanky-panky in this, it’s not true.”

The other question that crops up, then, is how could Growmore, which had no assets of its own and has an authorised capital of Rs595 crore, invest Rs1,030 crore in the first place?

Who are the promoters of this mysterious Mauritius entity?
So far, Adani Power appears to have done everything but answer the questions.

Desai also told DNA the company did not obtain a stay in the earlier-mentioned court case, but the court gave it on its own –  regarding the earlier order passed which sought the opinion of ED, DRI and the taxman in the merger.

But legal experts told DNA a court will not grant a suo motu stay and that the company must have sought one.

Asked about the source of income of Growmore and its owners, Desai said, “We have filed a detailed report with the Reserve Bank of India (RBI) once the investment was received. All the necessary information has been provided to the appropriate authority so it is not advisable for us to talk further in the public domain about the promoters of Growmore.”

What Desai did not say is that the Copy of Return filed by companies to the RBI regarding FDI does not capture the name of the ultimate beneficiary.

However, Avinash Gupta, leader, financial advisory, Deloitte India, clarified it’s not mandatory for an Indian company that is receiving funds from Mauritius to disclose the name of ultimate beneficiaries.

According to him, FDI in the power sector comes through the automatic route where companies only file reports on receipt of funds. There is no reporting on the ownership or shareholding structure and FDI receiving companies only do annual reporting on foreign asset and foreign liability.

Besides, when FDI is reported to the RBI, it is done through an authorised dealer (a bank that deals in forex and inward remittances of the investment attracting Indian company), said an investment banker who wished to be left unnamed.

Authorised dealers may ask for the KYC (know your customer) details of the company, but that does not mean it will lead to the ultimate beneficiaries, said the banker, adding, “This is a loophole that is being exploited by most of the companies receiving overseas funds.”

Asked why Adani Power was not more forthcoming, Desai said: “My disclosure requirements are very clearly defined in the legal framework and we are making them. If I am not disclosing names in other forums like media, then it should not mean that we are shying away.