Deccan Chronicle mess: Satyam all over again
Posted by fairval on July 27, 2012
Just how exactly does a net cash positive company default? It came to light a few days ago that Deccan Chronicle had defaulted. The events have seemed to gather speed over the last 2 days. On Thursday, the company announced its MD had quit. The stock was down almost 20% today. In July, it has lost over 50%.
Till July’12, Deccan had a long term debt rating of AA from CARE. On July 2, CARE issued a release saying Deccan had missed a payment on an NCD.
If you see its last declared balance sheet (Sep’11), it has a debt of Rs 298 crore, and cash and bank balance of Rs 398 crore. In other words, its net debt is zero and it had a cash balance on the top of it. Even CARE’s statement says: As per the company’s submission, it had outstanding cash balance/ FD amounted to Rs.372 crore as on December 31, 2011 and gross cash accruals for the last quarter (1st January to 31st March 2012) of FY12 amounted to Rs.20 crore. Despite aforementioned liquidity, the company has defaulted on its debt obligations. The company has not offered any explanation regarding the same.
So why did it default?
The most like explanation is the numbers are fudged. And it is not that this was not known.
The auditor seems to be some local entity called C B Mouli & Associates, so not a Big 4 / 5. And the rating agency was CARE. Both did not seem to know.
But did anyone know about the fudge? Some did. As early as 2009 or so, a friend of mine who is the equities head of an MNC broker, had called me check his hypothesis on Deccan. He said his analysis showed Deccan was overstating sales of its new editions, for ex, the one in Chennai. He sought my help to check this (I was in Times group at the time). I did an internal check, and I got the same feedback – Deccan was fudging numbers. The sales numbers they were claiming for some editions were simply not possible.
With all this, it seems many others, including CARE, didn’t catch it. This appears to be a case like Satyam.