MKVentures Capital Ltd

Hi, trying to get answers to a few questions. If anyone has worked out the details or has a understanding that helps address these, please share.

• Madhusudan Kela (MK) acquired 83.66% in Ikabi Securities, later renamed as MKVentures Capital Limited. MKVentures has entered into various Related Party Transactions (“RPTs”) with Chartered Finance & Leasing Limited (“CFL”)
• MKVentures is proposed to carry out various transactions with CFL in excess of the aforesaid limits during the financial year 2023-24 in such a manner that the maximum value of the related party transactions with CFL, in the aggregate, does not exceed Rs 1,000 crores

Problem: Mr. Madhusudan Kela is the Significant Beneficial Owner (“SBO”) of Sound Capital Markets Limited, which has a significant shareholding in CFL.

Chartered Finance & Leasing has:

1. Open borrowings/credit lines of about 315 Crores as per what is reported on Zauba Corp > Charges.
2. Also has bond issues of 256 Crores as per Wint Wealth.

Questions:

1. Why is MK using one of his company to lend money to another of his own company and in the process make money because the lent money would of course not be free.
2. Why is MK borrowing through a related party and then lending to himself as opposed to borrowing directly through the main entity (MKVentures)?
3. Why MK does not sell out his stake in Sound Capital Markets or have Sound Capital Markets disinvest from CFL – basically work towards making MKVentures Capital Ltd RPT list cleared off such large RPTs assuming his intention is to grow this business to which he has given his own name (MK)? This is all the more important because RBI (the regulator) is known to not look kindly at such governance related concerns even if the concerns are ambiguous in nature.

From Standalone financial statements:

• Interest Income: 10.3 Cr, Processing Fees: 9.86 Cr and Syndicate Fees: 6.6 Cr – Management says they are working on identifying new areas of business lending / alternative asset management, etc. So as of now, pure interest income is only 38% of total income. But no explanation as to how this is working out.
• In transactions with related parties, Borrowings received from CFL: 322.25 Cr and Borrowings repaid 224.4 Cr – That translates to net borrowings of 97.85 Cr. The interest for the financial year is mentioned as 3.34 Cr, that is 3.4% of net borrowings (borrowings received – borrowings repaid). That feels like a reason for red flag (not at arm’s length?)
  – Additionally, there is also total interest outstanding of 97.85 Cr (which is strangely similar to net borrowings (received – repaid)

Seeing all this, I stopped looking any further. Either the business is too hard to understand (which I doubt as various other financial companies/banks financial statements are usually understandable) or perhaps the management just doesn’t want a naive know-nothing investor to be able to understand it.

If anyone has been able to dig deeper into this, please do share your observations.