The Securities and Exchange Board of India (SEBI) may examine private equity giant KKR’s alleged involvement in an insider trading case pertaining to portfolio company CG Power & Industrial Solutions Ltd.
In a 174-page order earlier this week, the capital markets regulator upheld a ban on CG Power’s former chairman Gautam Thapar, former chief financial officers VR Venkatesh and Madhav Acharya, and director B Hariharan. The order confirmed the interim ban SEBI had imposed on the executives in September last year.
Thapar is the founder and chairman of Avantha Holdings Ltd (AHL), which has a minority stake in CG Power.
The matter came to light after Acharya complained to SEBI accusing KKR of manipulating the market, its involvement in insider trading and changing the control of CG Power.
“The subject matter of these complaints have not been specifically addressed in this order. However, SEBI may examine the said complaints,” the regulator said.
Acharya had also complained of KKR’s collusion with Tranzmute, a firm co-partnered by Narayan Seshadri, who was an independent director on CG’s board.
Seshadri is listed as a director at Tranzmute Business Advisory LLP, Tranzmute LLP and Tranzmute Capital & Management Pvt. Ltd, according to information obtained from the Ministry of Corporate Affairs.
While Tranzmute appears to have pulled down its website, its LinkedIn profile describes the financial services firm as a “turnaround and growth specialist” that provides “comprehensive and success-driven services” by partnering with businesses having latent potential. It is a 50:50 partnership between Seshadri and KKR Capital Markets India Pvt. Ltd.
In an email response to VCCircle, a KKR spokesperson acknowledged to reading SEBI’s confirmatory order along with all the submissions made to SEBI and complaints against KKR.
“We are aware of the attempt to drag AHL lenders into a defensive narrative being run by individuals and their proxies who are trying their best to detract from real issues of related party transactions and corporate governance,” the KKR spokesperson replied to an email query by VCCircle.
The spokesperson said that SEBI hasn’t made any observations or findings in the order that are adverse to KKR and that the PE firm hasn’t received any show-cause notice from the regulator.
“When and if we do, we’d be fully willing to cooperate. We believe this is an attempt to malign the very lenders who have lost a lot of money due to value destruction that has taken place in CG Power,” the spokesperson added.
In September last year, VCCircle reported that the PE firm, through its non-banking finance arm KKR India Financial Services Ltd, had acquired a 10.01% stake in CG Power by invoking pledged shares after the company reported financial fraud and irregularities.
Soon after the fraud came to light, the company’s board sacked Thapar and decided to consider selling non-core assets. The divestment would include the sale of Kanjurmarg land and CG House.
Between 2011 and 2016, KKR had lent substantial amounts to the Avantha Group. KKR India CEO Sanjay Nayar was also appointed on the board of the Avantha Group entities, SEBI observed, based on the complaints it received.
In 2017, KKR agreed to provide debt funding to the group. The debt was secured by a pledge of shares in CG Power on the condition that AHL could redeem the shares upon repayment of the debt.
KKR had the option of converting its debt into equity by mid-2018. However, Acharya alleged that KKR didn’t invoke the pledge. Instead, KKR suggested that Tranzmute be appointed as a consultant to CG Power to “increase operational efficiencies and create value” for the company. Later that year, Tranzmute suggested being involved across levels of governance and management structure in the company.
In February 2019, CG Power and AHL entered into a new brand usage agreement and an arrangement to repay the loans obtained by AHL. Around the same time, KKR invoked the pledged shares of CG Power held by AHL. During this time, there was a big swing in the stock price and volumes peaked between February and May 2019.
