Osian's Art Fund: The Broken Paddle
Net Anxiety Value
That time came in the middle of 2009 when the fund closed, but Tuli failed to keep his promise. Used as they were to fancy NAVs, investors were just about digesting the fall in the market but at least expected to be paid what was due. But for five months, even that didn’t happen. Finally, Osian’s told investors that it would send out cheques in December second week. However, it managed to pay only a few investors, that too only 85 per cent of their principal. Tuli then told the two foreign banks that had referred the fund to their clients that he would not be able to meet the deadline. But he assured them that he would pay.
The unravelling of the world’s second biggest art fund had begun.
“If I were an investor in such an entity, I would take whatever money I can recover and run with it. At the moment, things don’t seem to be all right,” says Goenka.
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Image: Vikas Khot
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WASTED PLOT: Osian's ambitious art conservatory project is yet to rise | |
Investors hadn’t got early warning. Even as the market fell, optimistic valuations by the Osian’s management of the art it owned and its ability to sell it in a falling market kept the NAV of the fund much higher than what could have been its actual market value.
Tuli now admits that the NAV might have been out of sync with the market.
“To some extent this can be seen to be so, but then no one foresaw the rapid collapse in prices, liquidity and volumes in the art markets, around the world not just India,’’ he says and blames the lack
of financial support systems for the liquidity crisis. “If a client does not pay the promised amount at the price agreed at the time agreed, what legal recourse can help the immediate repayment that the fund requires?”
While the NAV trap tightened, Osian’s, the company, was gasping for cash liquidity as revenues from the auction house dried up. It used up its entire working capital and overdraft lines of about Rs. 55 crore with a slew of banks during the year. Its bank loans increased from Rs 65. crore in March 2008 to Rs. 106 crore a year later, according to Project Picasso II. The report says that the cash crunch was so severe that the company could not pay loan instalments, statutory dues, overdue creditors, keyman insurance premium and even salaries in Delhi.
To meet urgent payments, it borrowed money from private companies such as Globe Commodities, Solaris Holdings and Mahalakshmi Glass Works in the form of inter-corporate deposits paying interest rates ranging from 18 per cent to 30 per cent per annum. Inventory levels shot up from 186 crore to about Rs 230 crore while sale of own stock plunged to a third and margins collapsed by nearly 80 per cent, Osian’s management informed the KPMG officials, according to the report. (Tuli has maintained that at no point did the company have short-term debt of more than Rs. 5 crore.)
In his latest email to Forbes India Tuli also said that the ICDs were very short term borrowing against incoming funds, and that they had the option to be converted into sale of art after a fixed date. The situation became even worse because Osian’s operates on a level of receivables that is unusual for companies. One banker says that Tuli asked for a loan repayment to be postponed because Osian’s’ clients were not able to pay.
The KPMG report said various entities and individuals owed Osian’s more than Rs. 100 crore, more than a third of which was owed as advisory fees for setting up the India Asia Arab Art Fund (IAAF). Of the $16 million that IAAF owed, Osian’s had already accounted for about $4 million as revenues in fiscal year 2007-08. It had accounted for the rest as receivables in the next year.
However, the fund never got off because it did not find enough takers. Tuli told Forbes India that Osian’s statutory auditors, Deloitte Haskins and Sells were in no position to comment on the timing of the arrival of the advisory fees but insisted that it was consistent with accounting practices because IAAF was only “postponed not cancelled.”
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just think a company who is treating it's employees as it's slave and not paying even salaries or can't even afford to pay salaries to its staff, how come will it pay to it's investors??
