“Rather fail with honor than succeed with fraud.”
Last week, Axis Bank and Kotak Mahindra Bank, the private money sector lenders have lodged a complaint against the travel firm Cox & Kings over the fraud of ₹1200 crores.
Considering this complaint, the Mumbai police’s Economic Offence Wing (EOW) has initiated the scrutiny over the alleged fraud.
Why is Cox & Kings suspected for the fraud? Since when is this company committing such fraudulent activities? What does the travel firm have to say about this?
An Overview of Cox & Kings
Cox & Kings is a UK and India based tour and travels company. The firm was functioning quite well in the initial stages of its operations. In 2009, they also brought the IPO (Initial Public offering). However, the company failed and declared bankruptcy in 2019.
One reason was the failure of the leveraged buyout strategy. The firm wanted to expand its operations and therefore started acquiring other companies using borrowed loans. In 2010, they acquired East India Company in 22 million dollars, Laters On group in 8.5 million pounds, and Holiday Breakages in 323 million Pounds. However, the acquired companies did not function well, resulting in increasing debts and cash crunches of C&K. They started selling their companies but underwent a loss of Rs 8 crores for FY 2015-2016, discontinuing its operations in Australia and New Zealand.
After this, the company started defaulting loans. In June 2019, they defaulted payment of ₹ 200 crores and declared bankruptcy. Other competitors gained a major advantage.
A forensic audit was conducted. The firm’s Balance Sheet disclosed Cash & Cash equivalents and Cash Receivables amounting to ₹ 1890 crores and 2418 crores respectively. They overstated their sales figures and understated their debts. In 2018, the firm had sold its education business for ₹ 4300 crores. Then why did they default payment of ₹ 200 crores in June 2019?
It becomes quite obvious that either the company had wilfully defaulted loans or have manipulated figures in their Balance Sheet. Or had the promoters diverted the cash? The promoters had mortgaged their shares in Yes Bank but could not pay the money back.
The Serious Fraud Investigating Office (SFIO) is presently investigating this case.
Axis Bank and Kotak Mahindra on a ₹ 1200 crores vacation
Manipulation and fraud now sound synonyms to Cox & Kings. Axis Bank and Kotak Mahindra have alleged that Cox & Kings were involved in manifold transactions and siphoned off huge sums belonging to banks, financial institutions, and public investors via its subsidiaries and offshore companies.
According to Kotak Mahindra, they have been extending financial help to Cox & Kings since 2012. By the end of 2019, this UK based travel company was liable to repay ₹ 174.3 crores which is indeed a huge sum. This gives us the clarity that the firm had been consistently inefficient in paying back borrowed loans.
Not only Kotak Mahindra but also Axis bank has submitted a complaint, alleging that some officials of Cox & Kings and its sister concerns had availed loan facilities to the extent of ₹ 1030 crores. They had not repaid it yet and hence cheated Axis Bank as well.
Cox & Kings is therefore liable to pay a total of ₹ 1204.3 crores to both the private money lending sectors. Following these financial irregularities, both the banks appointed PricewaterhouseCoopers (PwC) to do a forensic audit.
Ajay Peter Kerkar, Director and Group Chief Executive Officer of Cox & Kings said that “it is an inquiry.”
COX & KINGS- THE IMPOSTORS AGAIN?
PricewaterhouseCoopers had prepared a draft report. The first draft by the PwC report for Kotak said that there was a receivable of ₹ 449 crores from 15 parties. All the fifteen parties had their addresses in common and were made on the same day in the travel firm’s system. Something very shocking comes up then. When the police paid a physical visit to the addresses, it was found that none of those parties were located there.
The banks had all possible reasons to believe that the travel company is fictitious and are frauds.
The draft becomes noteworthy that the Cox & Kings was involved in fraudulent practices of some of the office-bearers of the firm.
However, FIRs are yet to be filed in both cases. Notably, the two complaints by Kotak and Axis, take such complaints against the travel company to three, as a preliminary inquiry is already ongoing based on a complaint on lodged by Induslnd bank, which has alleged default in payment of ₹ 239 crores.
STOCK MARKETS- BULLISH OR BEARISH?
The share price of this tour operator company has fallen by nearly 98% in the past 1 to 1.5 years. In 2018, the share price of Cox & Kings Company was moving around ₹ 225. On August 11, 2020, Monday, travel firm, Cox & Kings witnessed huge selling pressures on the stock exchange after being alleged over a fraud amounting to ₹ 1200 crores.
Cox & Kings Ltd. share price moved down by -3.45% from its previous close of Rs 1.45. Cox & Kings Ltd.’s stock last traded price is 1.40.
Meanwhile, Kotak Bank stock was trading at ₹ 1362.50 per piece higher by 1.43%, while Axis Bank was trading flat ₹ 448 per piece, rising by 4%.
The fall in share price does not always mean that it is going to rise shortly. the company has almost discontinued its operations. Though you can see the website live, you cannot book a tour.
Warren buffet says keep your money safe. Your money can be kept safe only if you invest in reliable companies, a detailed analysis of the company is a must before investing.