JSW refutes Credit Suisse report
09 July 2012
JSW Steel has strongly refuted reports that it had has understated debt by at least Rs11,900 crore.
In its response to an equity research report by Credit Suisse published on 6 July, JSW said all its documents and financials complied with the existing laws and regulations.
According to the company, its annual financial statements were in accordance with the Indian Generally Accepted Accounting Principles (GAAP), which included conformance with the latest Schedule VI of the Companies Act. The company added, its financials were audited by a reputed firm of chartered accountants.
The research report had raised three issues, the first being, acceptances were up from Rs6,800 crore in FY11 to Rs7,500 crore in FY12.
According to JSW's statement, acceptances of Rs 7,500 crore constituted trade payables and were related to raw material purchase and it had followed the practice of disclosure consistently since inception.
The report pointed out that securitised receivables were up from Rs2,600 crore in FY 11 to Rs3,100 crore in FY12.
It added, Rs3,000 crore of the Rs3,100 crore bills discounted had been covered by letters of credit and bank guarantees, and these were without recourse to the company and customers were liable to pay on the due date. The company had therefore disclosed the same under contingent liability.
A letter of credit is an undertaking on behalf of a buyer to a seller to make payments on compliance with the terms and conditions stipulated in the letter of credit, within a specified period of time.
A bank guarantee is an undertaking by a bank to make a payment in case the buyer failed to do so under the transaction. A letter of credit ensures a hindrance free flow of a transaction, while a bank guarantee is invoked by a seller only after default by a buyer.