No Deal: BluSmart Is On The Road To Nowhere Amid Gensol Fraud
An Eversource deal was likely never on the table, and now PFC has taken Gensol to the cops.
BluSmart Mobility has run off a cliff and landed between a rock and hard place, amid a fraud that's still unravelling at Gensol Engineering Ltd.
A widely reported deal with Eversource Capital wasn’t on the table in the first place, people aware of the matter told NDTV Profit. Separately, lender Power Finance Corp. is now knocking on the doors of the Economic Offences Wing to start criminal proceedings against Gensol.
That's significant on multiple counts. Let's pull aside the curtains a bit.
A person close to the developments told NDTV Profit that Co-founder Anmol Jaggi had sent out an email to BluSmart shareholders this month. The email outlined three options to take the company forward, as it was preparing to shut operations in the face of increasing regulatory scrutiny on Gensol Engineering.
One of the options, the person said, was a slump sale of the ride-hailing business to private equity firm Eversource Capital. The other two options were transitioning the fleet to Uber or a fund infusion by existing shareholder bp Ventures.
The Morning Context was the first to report the three choices Jaggi placed before BluSmart investors. NDTV Profit has not seen a copy of the email, but is only aware of the points made.
Other news reports said that Eversource was likely emerging as a frontrunner in the BluSmart deal, with the deal size reaching up to Rs 1,200 crore.
Jaggi's email highlighted a break-up of the Eversource deal, with Rs 400 crore as the slump sale amount, and an added infusion of Rs 800 crore beyond that for further expansion, the abovementioned person said.
However, Jaggi's email seemed to be misleading investors, as there's nothing happening on the Eversource front, the person added on the condition of anonymity.
A second person aware of the developments said that the last time Eversource had valued BluSmart Mobility was over five months ago, long before the Gensol fraud unfolded. And even then, there was no guarantee of a binding agreement.
Queries mailed to BluSmart and Eversource Capital did not immediately yield responses. This story will be updated if responses are received.
The Gensol Round-Trip
India's markets regulator issued an interim order against Gensol and the Jaggi brothers on April 15. The Securities and Exchange Board of India alleged that the brothers had moved money from company accounts to personal coffers, funding an extravagant lifestyle.
The order banned them from accessing the securities market, and halted Gensol's proposed stock split. SEBI also directed the appointment of a forensic auditor to review the company’s books.
The regulator outlined instances of document fabrication and large-scale diversion of term loans sanctioned for electric vehicle procurement.
BluSmart, co-founded by Jaggi, claims to be India's first and largest zero emission ride-hailing service. The app has over 30 lakh downloads and the platform has offered over 1.45 crore rides, according to the company website.
It was already in trouble by late March, when Refex Industries' green mobility unit withdrew a proposal to take over 2,997 electric vehicles worth Rs 315 crore from Gensol. These vehicles, in turn, were supposed to have been leased to BluSmart.
To be clear, BluSmart was never a subsidiary of Gensol, but only a related-party. After all, they shared co-founders. But in Gensol, BluSmart had an EV leasing partner which was a close ally.
Which means that scepticism around BluSmart's future is likely to be exacerbated by Power Finance Corp.'s complaint against Gensol Engineering over falsified documents. PFC's complaint to the EOW marks the first executive-level action that Gensol faces even as regulatory actions shape up against the firm.
EOW Complaint Sinks Hopes
To put PFC's complaint into some perspective, and to understand what it does to BluSmart's survival plans, one needs to look at what BluSmart as a business is.
It is a combination of a fleet of electric vehicles, charging infrastructure, driver network and a tech framework.
According to a shareholder presentation issued in March, BluSmart had 8,685 electric vehicles in its fleet, most of which are leased to it by Gensol Engineering.
PFC had sanctioned Rs 633 crore to Gensol, of which Rs 587 crore was earmarked for the procurement of 5,000 electric four wheelers for lease to BluSmart Mobility's ride-hailing service, according to a statement from the financer on Tuesday.
Of this Rs 587-crore loan, PFC only disbursed Rs 352 crore to Gensol and Rs 307 crore from this remains as outstanding dues as of April 18, it said.
Out of these 5,000 vehicles meant for BluSmart, only 2,741 vehicles have been delivered and hypothecated to PFC.
That means that in BluSmart's entire fleet of EVs—a fleet which Jaggi's email said could be sold to Eversource through a slump sale—at least a third of the cars are now party to a police investigation.
But BluSmart's survival is not off the table just yet, said Shriram Subramanian, managing director of proxy advisory firm InGovern Research Services. "The ball for BluSmart will only start rolling when Anmol Jaggi relinquishes control and new management takes control. But the timeline for the startup's revival will depend on how fast they close out on the BluSmart transition to new management," he explained.
At this point, BluSmart's management is likely to be more worried about drivers and customers leaving the company, he added.
"The brand identity of BluSmart is essentially linked to how good its drivers were with customers. And if this driver network starts shrinking due to lack of income, then that would present as many problems to the business as it is facing while finding new investors," Subramanian said.
