Located just off the bustle of one of Mumbai’s busiest commercial districts is A-Z Industrial Estate. Like many other such clusters in this Lower Parel area, A-Z once housed textile mills. Now, it’s a maze of small workshops, offices, and shops.
Shop No. 318 has no distinctive features. The entrance doesn’t even carry the nameplate of the company that claims to be housed in it – Karelides Traders Pvt. Ltd.
Inside, there’s a board that lists several companies registered with that address but there’s no sign of them or any of their officials.
Instead, on its first visit BloombergQuint found auditors of VKT Ventures LLP, a limited liability partnership registered on the same address, occupying the premises.
No Karelides company official was in the shop both times BloombergQuint visited. The local tea seller pointed to a neighbouring highrise—Piramal Annexe—when asked where Karelides operated from but a visit there proved unsuccesful too.
Who Is Karelides Traders?
Karelides Traders describes itself as a trader or wholeseller in its filings with the company registrar. It has a share capital of Rs 1 lakh. As of March 2018, Chandrakant Khetan owned a 99.5 percent stake of the company. The latest available balance sheet of the company, for 2017-18, shows that it had:
- no fixed asset (not surprising for a trading company)
- no salary cost
- no rent cost
Yet, the company reported a total revenue of Rs 183.2 crore and a profit of Rs 4.32 crore in that year.
Turns out Karelides does business with some of the biggest names in corporate India. Offering an insight into some rather interesting but opaque, real estate funding structures.
Doing Business With The Big Boys
Karelides Traders borrowed this Rs 1,010 crore between FY16 and FY18 via an issue of non-convertible debentures to different schemes of Kotak Mutual Fund.
Kotak refused to comment on the transactions. Rating agency ICRA explained the AA rating saying it was assigned “on the back of an irrevocable and unconditional undertaking from Piramal Fund Management Private Limited (PFMPL) that would cover all obligations that may arise on the rated NCDs”.
Piramal Fund Management—an unlisted subsidiary of Piramal Enterprises Ltd., the listed flagship of the Ajay Piramal Group—is engaged in the business of investment advisory, portfolio management, and consultancy services for real estate project development.
In FY18, Karelides Traders, now armed with Rs 1,010 crore funds, subscribed to Rs 774 crore in debentures of two Omkar group companies—Omkar Realtors Pvt. Ltd. and Shree Nidhi Concept Realtors Pvt. Ltd. It also invested in non-convertible debt instruments issued by Transcon Developers Pvt. Ltd., a Mumbai-based realtor.
As per the latest rating rationale available of February 2019, Karelides had repaid all its debt. But as the company has not yet filed its 2018-19 annual report, it’s not clear how it raised funds to do so.
More recently, in September 2019, Karelides Traders bought Rs 150 crore in debentures of Piramal Capital and Housing Finance Ltd., the non-banking financial arm of Piramal Enterprises. Its co-investor was Central Bank of India, which purchased a similar amount in the private placement.
What Could Be Going On?
Between FY16 and FY18:
- Piramal Fund Management gave an undertaking in the form of a letter of comfort on the basis of which Karelides Traders issued debt instruments.
- ICRA relied on the said undertakings to rate Karelides debt instruments.
- Different schemes of Kotak Mutual Fund, during this period, subscribed to debentures of Karelides based on the investment-grade rating and undertaking by Piramal Fund Management.
- The money raised by Karelides was onward lent to Omkar group and another real estate company.
Don’t Know Why
Curiously, the company that plays a starring role in this financing structure and whose debt was supported by none other than an Ajay Piramal company, features nowhere in the balance sheets of Piramal Fund Management and Piramal Enterprises. Neither makes any mention of any undertaking or letter of comfort to Karelides. Ordinarily such an undertaking would show up as a contingent liability.
It’s also not clear why:
- A Piramal group entity would provide an undertaking or letter of comfort on over a thousand crore of debt raised by a nondescript trader with no assets or employees.
- Why ratings agency ICRA would rate a company solely on the basis of such an undertaking.
- Why Kotak Mutual Fund would lend such a company money, undertaking or no undertaking.
- How Karelides Traders squared all these transactions.
But the biggest unanswered question of them all is—how did an entity registered to a nondescript shop in an industrial estate in central Mumbai become the kingpin in this real estate financing structure?
We’re still looking for answers.
Piramal Group Response
In response to BloombergQuint’s query, the Piramal Group said…
“We would like to state that Karelides is not a related party of Piramal. Also, Piramal has not given any guarantee for Karelides. As routine part of business, Piramal does engage in syndication of structured debt in the market for fee-based income. The Karelidas transaction has matured and the payment has been made by Karelidas to the lender.”
BloombergQuint in its first query had asked about a Piramal guarantee to Karelides debt. We should have been clearer and asked about a letter of comfort or undertaking. Which we did in a subsequent email but have received no further response from Piramal.
Kotak, Omkar, and Karelides did not respond to our questions despite repeated reminders.
WATCH | Who Is Karelides Traders?
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