Why Did Hubtown Sell, Buy And Sell The Same Company?
It’s not unusual for real estate companies to transact in land and property, but when a developer acquires an asset and sells it within 10 days, that raises eyebrows.
Mumbai-based public listed developer Hubtown Ltd. (erstwhile Ackruti City Ltd.) acquired a 51 percent stake in a firm, E Commerce Magnum Solution Pvt. Ltd., for Rs 48.19 crore in cash on Sept. 17, 2018. According to filings with the Registrar of Companies, E Commerce Magnum had assets of Rs 90.28 crore, which included unfinished developments worth Rs 85.14 crore as on March 2017.
So far so good. But then 10 days after purchasing it, Hubtown sold the company to another Mumbai-based developer Radius Infra Holdings Pvt.Ltd. and others at a loss of Rs 23.19 crore, according to the company’s stock exchange filings.
That suggests in 10 days E Commerce Magnum somehow lost half its value. Worst still, the transaction, which took place towards the end of second quarter, was not recorded in the profit and loss statement of the company in that quarter.
“The loss on sale of investment should have been mentioned as a separate item in the profit and loss account since the loss is more than one percent of the revenue for the period,” said TP Ostwal, accountant and managing partner, TP Ostwal & Associates.
Hubtown’s auditor MH Dalal & Associates made no reference to the transaction as part of the limited review for the half year ended Sept. 30, 2018. Both Hubtown and MH Dalal & Associates did not respond to BloombergQuint’s emailed query.
Hubtown Had A Tough 2018
Hubtown has projects in seven different cities in India, including residential and commercial properties, and special economic zones. In FY18, the company’s total income was Rs 605.21 crore and profit Rs 26.54 crore. But the past few quarters have been tough – with total income in the half year ended September 2018 up 13.43 percent on a yearly basis but profit down 96.92 percent to Rs 1.37 crore.
Hubtown shares have lost close to three-fourths of their market value in the last 12 months. In February 2018, the company defaulted on non-convertible debentures and was downgraded to a ‘Default’ rating by Brickworks Ratings. The agency also disclosed on Jan. 14 that the issuer has stopped cooperating and sharing information despite repeated requests.
E Commerce Magnum Solution Has A Past
As BloombergQuint dug deeper, the story got curiouser. It turns out that E Commerce Magnum was a wholly-owned subsidiary of Hubtown till October 2010, when it was sold to a set of seven investors led by the Mumbai-based Pethani family and Surat-based Nitin Adani and his family, according to RoC filings.
In FY10, E Commerce Magnum had assets worth Rs 2.59 lakh consisting of cash and bank balances, and advances and a consultancy income of Rs 2.6 lakh. The filings don’t disclose its sale value.
In 2013, three years after Hubtown sold the company, it converted an existing loan to E Commerce Magnum into 21 percent cumulative optionally convertible redeemable preference shares worth Rs 66.71 crore. As of September 2018, Hubtown had not converted those preference shares into ordinary equity.
In short, when it re-acquired 51 percent stake in E Commerce Magnum in September last year, it continued to hold the preference shares.