Monday, July 5, 2010

Questions raised on Caparo Group's future

S Kalyana Ramanathan / London July 5, 2010

Fresh doubts have been cast over the future of Lord Swraj Paul's UK-based engineering conglomerate, the Caparo Group, following a report by the group's auditors, BDO, on its ability to "continue as a going concern", according to the Daily Mail newspaper here.

A scathing report published by the newspaper today revealed the group had broken the terms of certain bank loans, that may lead to trouble in accessing funds to run its normal operations. The report said the company owed £257 million due for payment within a year and its banking facilities are being negotiated country by country where it has business interests.

Caparo's business interests span Britain, Europe, the US, India and West Asia. Repeated attempts to reach the group's office in London and Lord Paul's personal phone were futile. Not could comment be secured from the company's auditors.

"Cash flow forecasts to the end of December 2010 indicated the group would be able to trade within its existing 'and expected' loan facilities, Caparo said, though it admitted there was little room for manoeuvre," the Daily Mail reported.

Admits breaches
The newspaper further said that in its latest report and accounts, Lord Paul admits some of the group's companies had breached the terms of their bank loans, blaming the severe decline in trading conditions. Caparo reported a turnover of £861 million but a pre-tax loss of £3 million. Being an unlisted group, the veracity of this report cannot be confirmed at this stage.

In December 2009, in an interview to Business Standard, the group's CEO and Lord Paul's youngest son, Angad Paul, had said the group expected demand for steel products to rebound, with 2010 revenues to be £850-900 million (Rs 6,400 crore). Revenues for 2011 have been projected to be around £1.2 billion (Rs 9,000 crore), to mostly come from the investments completed over the past two to three years.

At the time of the interview, the group's CEO was very bullish about the operations in India and said a third of the group's revenue, or around £400 million by 2011, would come from India.

Questions hanging over the group's ability to access funds for normal operations raises serious doubts over these projected numbers.

On the group's ambitions in India, Angad Paul had said, "(The plan is) that we get the best customers, the best customer satisfaction, best quality and best delivery performances. It's actually that simple. There is nothing world-dominating about it."

Caparo has presence in 50 locations across the UK, North America, India, Spain and Dubai. It employs over 6,000 people worldwide, more than half in the UK. The group established its presence in India in 1994, though a joint venture with Maruti Udyog (now Maruti Suzuki) and has a presence in 16 locations in India, with primary interests in manufacturing automobile components. It is also a major supplier for Tata Motors' iconic small car, the Nano.

The group's chairman, Lord Paul, vocal supporter of the former Labour government in the UK, came under severe criticism last year over expense-reimbursement claims as a peer. He is one of the biggest donors for the Labour party and close to former Prime Minister Gordon Brown.

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