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Rs 46.33-cr knock on `Big Value' redemption -- CAG raps GIC Asset

Our Bureau

NEW DELHI, May 6

THE Comptroller and Auditor General of India (CAG) has come down heavily on GIC Asset Management Company Ltd for taking upon itself the obligation of making good the shortfall of Rs 46.33 crore resulting out of the terminal redemption of `GIC Big Value S cheme' in June 1997.

In its transaction audit observations report for the year ended March 2000, the CAG held that the promise of assured returns without taking into account the volatility and uncertainty of market has resulted in GIC Asset meeting the shortfall of Rs 46.33 crore at public cost.

Stating that public funds were utilised to meet major share of the shortfall, the CAG asserted that the utilisation of public funds for restoring confidence and loyalty of the investors and to keep promises made by sponsors regardless of stock exchange v olatility was not justifiable ``especially since majority of equity shares were held by a foreign promoter and a non-Government company''.

GIC Asset was set up in 1993 with 49.50 per cent equity participation from GIC and its four subsidiaries. The balance 50.50 per cent was held by a foreign collaborator (33 per cent) and GIC Housing Finance Ltd (17.5 per cent).

GIC Big Value Scheme, a five-year close-ended scheme, was launched in June 1992 with an assured return of 15 per cent per annum and its management devolved on GIC Asset in December 1993.

The net asset value (NAV) in June 1997, when the scheme matured, was only 15.45. The scheme was redeemed on the due date of June 30, 1997 at the assured terminal redemption price of Rs 21.48 per unit.

The shortfall of Rs 46.33 crore was funded through issue of additional rights equity (Rs 15 crore), loans from GIC and its subsidiaries (Rs 18 crore) and internal resources of GIC Asset (Rs 13.33 crore).

The loan was also subsequently converted into 11 per cent redeemable cumulative preference shares, thereby increasing the participation by GIC and its subsidiaries to 73.40 per cent from the original 49.50 per cent.

Even though the management contended that the ``commercial obligation'' to make good the shortfall was spelt out in the Investment Management Agreement (IMA) with GIC MF, the CAG held that the management's reply was not tenable as it was not supposed to partake in the risk.

The CAG noted that by promising assured returns, the company took upon itself a risk which was ``unwarranted''.

GIC Asset's management also said that legal advice obtained by the company was to pay the minimum return in accordance with the assurance given in the scheme.