Sunanda handed mother of all sweetheart deals

Published>Fri, Apr 16 10 02:09 AM

Sunanda Pushkar's deal with the Kochi IPL team is the mother of all sweetheart deals.

According to the joint venture agreement between the team's shareholders, a copy of which is with The Indian Express, the 25% sweat equity shared by Pushkar and others is "undilutable in perpetuity."

In other words, the value of Pushkar's stake?18% of the 25%?now valued at Rs 70 crore can keep rising without her investing a single rupee in the venture. Tharoor has publicly acknowledged that he helped bring the investors together and has introduced Pushkar as his fianc?e in several gatherings.

Even if other existing investors keep pumping in funds to run the team, or even if new investors are roped in by issuing fresh shares to infuse additional capital, these sweat equity holders continue to retain their stake intact at 25%.

However, the other shareholders' stake will diminish to the extent fresh shares are issued.Also, the sweat equity holders can exit--sell their stake to a third party?after a lock-in period of just two years.

The first right of refusal, however, rests with the other six shareholders. Also, when it comes to infusing funds, it is only the investors other than Rendezvous holding the balance 75% sweat equity that will be required to invest as and when required.

"This is unprecedented, ridiculous and unheard of," said Nawshir Mirza, a leading corporate governance expert in India, who sits on the board of companies such as Tata Industries and Tata Power as an independent director. "Generally, such high percentage of sweat equity will be granted only over a couple of years."

According to the agreement: "Investors (other than the sweat equity holders), jointly and severally, agree that at no point of time the equity contribution of Rendezvous shall fall below 25% notwithstanding infusion of additional funds in the UJV from time to time."

The Rendezvous free equity is held by Kishan Gaikwad, Shailendra Gaikwad and Pushpa Gaikwad, Sunanda Pushkar, Puja Gulati, Jayant Kotalwar, Vishnu Prasad and Sundip Agarwal.

A chartered accountant, who is a whole-time director on the board of a company, globally respected for corporate governance standards, said, "I have not heard of it in my life. After the sweat equity is granted, value is deemed to have been received." According to him, there are two serious issues: One, though shares are issued in lieu of cash for the value the sweat equity holders are bringing to the table, it is considered as income in the hands of the sweat equity holder. So, Pushkar has to file an income of Rs 70 crore in her tax returns. Two, there is a bigger issue of propriety -- being the partner of Tharoor, a person who holds public office, she has to justify the value of the management services she renders.

Source: Web Search