Gujarat rope trick: Who decided in 2013 to invest Rs 250 Crore in a dubious company in Canada ?

Why did Gujarat State Fertiliser & Chemical Corporation suddenly invest Rs 250 Crore in a Canadian company in 2013 ? What did it gain, especially since the shares of the company it bought in 2013 are now worth just Rs eight Crore in 2020?

Who did the investment benefit, since GSFC certainly hasn’t? While an Independent Director in the Canadian company appears to bear the same name as that of the Chief Finance Officer at GSFC, former Chairman cum MD of the company Alexander Luke, a retired IAS officer, believes that the CFO in Ahmedabad appears to be the acting chairman of the Canadian entity, suggesting that GSFC has controlling interest in this company.

The retired officer, who drew the attention of the Gujarat Chief Secretary to the dubious deal in a letter written on November 2 this year, cannot be dismissed lightly. He as the CMD of GSFC is credited with turning around the loss-making company. He indeed was known in Gujarat as the turnaround man, having changed the fortune of several sick units in the state.

Mr Luke, who retired in 2006 and has been living in Kerala, is irritated when we contacted him over the phone. "Anybody can find out the facts with a little research. Isn't it the media's duty to ask questions ? Rs 250 Crore is not a small amount. It is public money. If the money was thrown down the drain, it is your job to find out if someone collected it at the end of the drain."

He told NH that he questioned the investment after eight years by way of a patriotic duty. News portal counterview.net carried a report based on his letter to the Chief Secretary and the current CMD of the GSFC. Here is the link: https://www.counterview.net/2020/11/pump-and-dump-strategy-erosion-of-gsfcs.html

In 2013 GSFC bought shares of Karnalyte Resources incorporated in Canada. By buying 5.49 million shares GSFC held 20% of the company’s shares in 2013. But strangely, the Canadian company’s share prices fell sharply after the investment the GSFC investment.

While the shares were trading at seven Canadian Dollars each in 2013 (GSFC bought them for eight Dollars), the share value of Karnalyte by November, 2020 had plunged to 0.24 Dollar each, wiping out almost the entire investment made by GSFC.

GSFC had justified the investment by claiming that this was in return for a promise made by the Canadian company to supply 350,000 tons of Potash in the future. Curiously the Canadian company did not have any potash production facility at the time. In any case, as Luke's letter points out, it was a rank bad decision to pay upfront for a questionable delivery to be made in the future.

Since then, GSFC’s shareholding in the Canadian company has gone up to 38%---confirmed by the present CMD to The Indian Express. But by all accounts, the Canadian company has supplied no potash to GSFC in the last eight years. But GSFC is today the biggest shareholder of Karnalyte, by all accounts a dud company, possibly its only utility being as a siphoning agent.

What is also curious is that potash, used for industrial and agricultural use, was freely available all along in the international market. In 2020 there is a glut of potash in the market. The requirement of potash by GSFC was never very large and it could easily purchase the required amount by paying far less than the Rs 250 Crore it decided to invest in a company which promised to supply potash sometime in the future. Remarkably, even after seven years and though Karnalyte failed to supply the promised potash, GSFC has not faced any shortage of potash in these years.

Indeed, Karnalyte appears to have abandoned the potash project ! Instead it is now engaged in a ‘Nitrogen’ project and presumably waiting for another dose of investment from GSFC. For a company that talks big, it appears to have earned no revenue in the last 12 months and has posted no profit.

What is also telling is that it seems to have just three employees.Karnalyte Resources Inc states on its website that it was founded in 2007. The chairman board of directors of Karnalyte Resources is Vishvesh D Nanavaty who is also the Chief Finance Officer at GSFC, reported The Indian Express on November 10.

In his piece in Counterview.net, Alexander Luke notes, “The Karnalyte CEO at the time of this investment by GSFC was Robin Phinney. He was removed from his post in 2018 by the company. The circumstances of this as reported on the Karnalyte site suggests some ethics issue as the cause. The new CFO is Christie Gradin. The new CEO is not known. The Chairman of the Board now appears to be V Nanavaty, DC Anjaria is also on the Board.”

Significantly, the GSFC's current CMD, also an IAS officer who of course was not in the company in 2013, denies any plan to dump its shares in Karnalyte. Stating that it was for the company to perform and fulfil its contractual obligations, CMD Arvind Agarwal told IE, “We are not in the day-to- day management of the company… Now when company finds the Potash market suitable, they will take up the project.”

While Alexander Luke wrote the letter to the Gujarat Chief Secretary Anil Mukim and the GSFC CMD Arvind Agarwal on November 2, till November 18 he had not received any acknowledgment or reply. However, the CMD, when contacted by The Indian Express, said he had not seen the letter because it was very long and had several links attached. “It is a seven-year-old matter and there is no point in going in, digging. I don’t know why he is doing it…,” the CMD was quoted as saying.

(NHS has mailed several questions to the GSFC. As and when the reply is received, this report will be updated.)