Kotak Fin told to pay Rs 70 cr to banks in debenture deal

MUMBAI: Kotak Finance Prime, a Kotak group subsidiary, which purchased Apple Finance debentures from four public sector banks at a discounted rate, will have to shell out an additional Rs 70 crore following a high court directive to Kotak to make full payment to these banks.

The HC order came after Dena Bank and Gujarat Gems, a minority shareholder of the four PSU banks, moved the court pointing out the infirmity of the banks settling with Kotak Finance Prime to sell the debentures at a value much lower than the acquisition price. The banks who held the debentures were Dena Bank, United Bank, Syndicate Bank and UCO Bank.

The debenture episode has its origin in Apple Finance selling 3-year debentures in 1999. On maturity in 2002, the firm defaulted on these bonds. In early January, Kotak bought Apple’s debentures for Rs 80 crore as against outstanding dues of Rs 127 crore on these bonds. Prior to this, in November 2005, the high court had ordered the sale of Apple Tower, a property of Apple Finance, to repay the bondholders. Apple Tower at Bandra Kurla Complex in Mumbai was put in auction mode by the high court, where Jet Air emerged as the highest bidder at Rs 206 crore.

Now that Kotak Finance Prime has been directed by the HC to make almost full payment to its debentureholders, in line with the settlement Kotak reached with another debentureholder, Bank of Baroda, it can claim full charge of the property only after complying with the court directive. The court has directed payment to all unsecured creditors, too, which is estimated at about Rs 300 crore.

Apple Finance has informed the court that the current valuation of Apple Tower would be around Rs 600 crore. The high court directed Kotak to pay off within eight weeks all debentureholders with interest at the rate of 14%. In the event of the settlement not made during the prescribed time limit, the court receiver is directed to obtain a fresh valuation of Apple Tower building and get a new reserve price.

The value of the bonds held by United Bank, including interest, was Rs 35 crore, and the amount offered by Kotak was Rs 16.5 crore. Dena Bank held bonds worth Rs 58 crore, while the amount offered was Rs 35 crore. Syndicate Bank held Rs 11 crore (Rs 8 crore offered) and UCO Bank held debentures worth Rs 23 crore (Rs 16.5 crore offered).

The representation before the Bombay High Court has alleged that the banks — Dena Bank, Syndicate Bank, UCO Bank and United Bank of India — sold these debentures to Kotak at a discount, despite knowing that the debentureholders have a first charge on Apple Tower, the value of which exceeded that of the debenture. The debenture value with interest at 14% would be about Rs 200 crore. The unsecured creditors of Apple Finance are Sicom, ACCL, Canara Bank and other small creditors.