CG Power lenders hire audit company BDO to monitor fund flows

MUMBAI: Lenders to CG Power & Industrial Solutions have appointed Belgium-headquartered auditing firm BDO to track the daily fund flows of the company and the transactions made by its management, three people familiar with the matter said.Lenders are reluctant to give fresh loans to the company hit by allegations of corporate governance violations and fraud. They are nervous about the way the cash flows are managed and want to monitor the daily expenses, and hence all expenditures will be approved through BDO, which has been hired as an agency for specialised monitoring (ASM), one of the people said.“Every transaction, whether it is a vendor’s bill or even a supplier’s payment, will be monitored by the ASM. If there is a red flag, then the transaction would be stopped immediately,” he added. BDO India declined to comment. CG Power did not respond to ET’s queries.Corporate governance violations surfaced at CG Power in August, with a board-led investigation revealing wrongdoing by some current and former employees, leading to the dismissal of chairman Gautam Thapar. The probe found understatement of Rs 4,796 crore in advances to related and unrelated parties, and Rs 2,661 crore in liabilities.Out of the 14 lenders to CG Power, nine banks that hold nearly 88% of its total loans outstanding have signed an inter-creditor agreement, a precursor to resolving stressed loans under the Reserve Bank of India’s framework. As of March-end, CG Power had total domestic debt of Rs 2,349 crore, international debt of Rs 1,215 crore, and another Rs 463 crore of contingent debt even as the company is restating its accounts.72269036 “The lenders also want to scrutinise all the related-party transactions and track how the money lent by them is being deployed,” said an official involved in the discussions, speaking on the condition of anonymity. “The funds must be used for the precise purpose for which those were meant … and the appointed agency has been mandated to track these transactions beyond the financial statements.”In the past, lenders have observed that fraud-hit companies tend to exaggerate the value of stock or overpay vendors for supplies, hence banks want to monitor stock and receivables on an ongoing basis. Also, background verification of vendors and suppliers may be conducted if any red flags are raised.ET recently reported that CG Power had sought a waiver from the market regulator to access the capital market. The company is planning to raise Rs 800 crore from existing and new investors to tide over a funds shortage.Last week, the company informed stock exchanges that the Ministry of Corporate Affairs had approached the Mumbai chapter of the National Company Law Tribunal seeking to reopen the books of accounts of the firm for the last five years.

from Economic Times https://ift.tt/2Dk5WxU