Exclusive

Founder Promoter Allegedly took 10 percent Cut for Every deal including Royalty paid to Singapore Hotel Chain

The Gujarathi business tycoons are out of prison, but the investigation into financial mismanagement of public companies is on. Some of the high profile people are advised not to leave the Gulf country! While they may appear in public meetings with the consent of higher authorities, they are known to be under the control of law enforcement authorities. While PK, directly involved in the hotel project, was trying to leave the country for UAE, he was caught in the airport. This smart businessman, director of the hotel, has been allegedly taking 10 per cent commission for each deal signed for the project. He never received the kick back directly, but through a front man. Being a director and promoter, he even took a kick back from the Singapore Hotel chain from the royalty fee for using the brand name! A commission was charged by this director and member of founders committee for services fee paid to the Singapore company. As per the license agreement with the hotel management company, 2 per cent of the gross revenue of the hotel will go to the international company. In addition, four per cent of the gross revenue of the hotel will go as license agreement fee for using the International brand name of the five star hotel. For an "offshore" Services Agreement with the international company, eight per cent of the gross operating profit of the hotel is projected as "offshore" services fee. For each and every transaction 10 per cent is the " cut". Civil construction and contract work worth $7.5 million was done by two companies related to the group. Out of the total project cost, nearly seventy per cent was spent on construction and civil work! Even if the hotel is projected to incur heavy losses, the founder director has made enough money during the first phase of the project itself! What a magical formulae of business success. Even though the company will make loss, why should the director be worried? He has sold his share in the company! No wonder an Indian community school with 3000 students and high fee structure run by the same business family has not made any profit in the last one decade! A new chapter in corporate governance and transpareny. The name should be recommended for an award for successful businessman.- Watch this space to know who spilled the beans?

Exclusive - Indian Tycoons face investigation! Released now?

Financial Mismanagement, Overinvoicing of Biscuit Factory in the Gulf by Indian Partners under Investigation

Take Loans from Banks without the authorisation of local partners; Obtain Soft Loans from the Ministry and Fund diversion; Public shareholders incur loss, chairman accumulate wealth!

A public shareholding biscuit and choclate factory managed by the Indian business group has been incurring heavy losses over the years due to manipulation of accounts, over invoicing of imports and inflated cost of operation.The main reason for taking the Indian business tycoons in custody for investigation is the revelation from inspection by concerned authorities that they took huge loans from banks without the permissin of the local sponsor, an influential military official. A Government soft loan was also obtained through dubious means. The company which incurred a net loss this year has an accumulated loss of $ $17 million. While there is an accumulated liability of 12.5 million, the company has been trying to get another soft loan of $6.25 million to "revive" the company. Paradoxically enough, this company has been under the chairmanship of an NRI who was bestowed with a prestigious award by the Indian Government. This is the latest cheating case by a business tycoon - thanks to the focus on corporate governance and accountability. According to the grapewine, these are only the tip of the ice beg. Other high-profile Indian tycoons are also under the microscope of ....These Indian shaikhs are definitely not the role models for Indian community.Watch this space.

E X C L U S I V E

How the Local Partners were Cheated by the Gujarathi Business Tycoons

June 8, 2003

Investigation is going on against the Indian businessman and his family members who have allegedly cheated their Arab business partners in a multi million-hotel project and other businesses. The Gujarathi businessman was one of the main partners with an influential business group in the hotel project. The project involved a total investment of $26.25 million (Equivalent to more than Hundred Crores of Indian Rupees?) financed with an equity capital of $7.5 million. Te founder shareholders including the Gujarathi businessman had subscribed to 60 per cent of the share capital ($4.5 million).

Due to the global situation tourism is not an attractive business. Despite the hype generated to make money from the state exchequer in the name of tourism promotion, the hospitality industry is not doing great business. However, building a five star hotel proved to be a lucrative venture for the Indian business partners. The government also supported the project with a soft loan of $7.5 million and there is a commercial borrowing of $11.25 million from banks. Even though the company came out with a public share issue, it could hardly attract any serious investors as most of the big hotels listed on the stock market were showing poor performance. The hotel which planned to offer different room styles to the tourist and business segments did not succeed as the September 11 incident and the subsequent war in Iraq adversely affected the GCC hotel industry. The group tied up with the Singapore based hotel chain, which manages several premium properties in South East Asia. The investment companies and smart investors did not subscribe to the issue due to obvious reasons.

The hotel project is promoted by an Investment company promoted by a member of an influential family, a private company owned by the Gujarathi businessman, who is also an international award winner and his two sons in their individual capacity. Another prominent Non Resident Indian, pension funds and other public investment trusts also invested money in the hotel project.

The hotel introduced a new concept in the Middle East hotel industry . Managed by a Singapore-based Hotels chain, the hotel adores contemporary Arab architecture and is the first hotel from the Singapore group outside Asia offering 80,000sq. m of lush green palms, water ponds and a private beach. The hotel, offers a choice of 161 modern deluxe rooms, private villas equipped with hotel services, swimming pools, tennis courts, art gallery, boutique, spa facilities and a brasserie style restaurant with open kitchens. The hotel has designed two exclusive semi-private rooms for up to 28 persons, which is reserved for business luncheons and romantic dinners. Honeymoon travellers have been one of the targeted groups. The hotel has been providng 50 per cent discount to attract customers.

However, one of the reasons for the investigation is an allegation that the construction cost of the hotel has been highly inflated and many items, which are shown as imported specially for the projects are procured from the local market! It is learned that the project was handled by a construction company with strong links to the Gujarthi business family. Surprisingly, it is alleged that the Gujarathi businessman who took a leading role in promoting the hotel project hurriedly sold his share and got out of a loss making venture leaving the financial burden of liabilities and bank borrowings to the local partners! Realizing well that the hotel sector is not as lucrative as initially projected for unknown reasons, the withdrawal of the original promoter at a critical stage would definitely put the rest of the partners in difficulty. "When things are doing well nobody noticed the inflated project cost. But when the hotel incur losses as happened within the first six months of operatiion, the local partners felt the difference."

Especially if the hotel project has a debt exposure to commercial banks. Banks are already facing serious bad loan problems and the new thrust on corporate governance makes it difficult to write off such loans. Definitely serious questions are asked about the non- profitable investment made by the bank in the project! Once the project is completed and the construction activity stopped, the Indian partner smartly got out of the project. As happened in many other new companies, which came out with public offerings, the hotel is said to be incurring reasonably good loss. It is learned that the award winning Indian businessman is not taken in custody due to health reasons. He is aged and suffers from a number of diseases. Complaints against another investment in a food processing company are also heard. There are complaints that the project did not yield much profit as expected. According to the grapevine, the search light of the regulator is now focused on other prominent Indian businessmen.- Watch this space. -keralamonitor.com