BlackRock raises alarm over ‘substantial irregularities’ in SpiceJet accounts

File image of Ajay Singh, Chairman & Managing Director of SpiceJet

File image of Ajay Singh, Chairman & Managing Director of SpiceJet

New York-based asset manager BlackRock Inc has raised an alarm over functioning at SpiceJet pointing at “substantial accounting irregularities” in the domestic airline’s books, Mint reported.

BlackRock did not specify details of the irregularities, but during the shareholder meeting on December 30 voted against audit committee member Shiwani Singh. “We believe the audit committee bears some responsibility,” said the wife of SpiceJet CMD Ajay Singh.

Moneycontrol could not independently verify the report.

BlackRock called attention to “state of affairs at the airline” and exercised its voting rights as an investor in SpiceJet at the December 30 meeting. It voted against the company resolution to re-appoint Singh as the director and rejected the resolution to adopt financial statements due to “serious qualifications by auditors”, the report said.

Documents seen by Mint showed that little over 50 percent of public institutions voted against Singh’s re-appointment and 46.76 percent of large investors voted against accepting financial statements for fiscal ending March 2021.

However, Ajay Singh and his family, who own 59.46 percent in SpiceJet, and retail shareholders, who own a third of the company, have approved both resolutions.

Foreign investors on alert

BlackRock is the largest money manager globally with $ 10.01 trillion in assets. But it was not the only unhappy foreign investor.

Institutional foreign investors and mutual funds such as American Century Investments, Legal & General Investment Management (LGIM) and State Street Global Advisors, own 1.96 percent of SpiceJet also voted against both resolutions.

LGIM said its negative vote came after auditors “expressed concerns” about SpiceJet’s accounts and it was unhappy about Singh being part of the nomination and remuneration panels and composition of audit, the report said.

American Century Investments, BlackRock, LGIM and State Street Global Advisors did not respond to Mint’s queries.

What auditor said

Walker Chandiok and Co, SpiceJet’s statutory auditor, said compensation of Rs 560.45 crore from Boeing for losses incurred due to grounding of the Boeing 737 Max aircraft were acknowledged as other income before it received funds from the manufacturer.

“The management of the company has recognised ‘other income’ of Rs 560.45 crore for the year ended March 31, 2021 (Rs 6,718.04 million for the year ended March 31, 2020) and related ‘foreign exchange loss on restatement’ of Rs 270.61 million for the year to March 2021 for the amount charged to Boeing for reimbursement of expenses incurred on Boeing 737 Max aircraft, which has been grounded since March 2019,” wrote Neeraj Goel, partner at Walker Chandiok and Co.

What SpiceJet said

A spokesperson for SpiceJet told Mint the foreign portfolio investors never sought clarification from the company nor attended the AGM “wherein the company responded to various queries of investors“, adding that auditors did not highlight any financial irregularities and investor’s reasons for voting “are best known to them”.

“There is only one qualification that has been mentioned by the auditors and the same is on account of difference in the opinion between the views of the management and the auditors regarding the manner and timing in which the compensation from the manufacturer of grounded 737 MAX aircraft is to be accounted. These are not financial irregularities and the same has been disclosed by the company in all transparency with full disclosures at all relevant times. In fact, the view of the management on the said qualification was disclosed and filed with BSE on June 30, 2021,” the spokesperson told Mint.

The June BSE filing is as follows:

“The management always believed that it will be able to recover the compensation from the aircraft manufacturer, which was the basis for the management to recognize the amounts in the manner as reflected in its financial statements quarter on quarter. The same is now manifested from the settlement which the company entered with Boeing which was announced by the company on 17 November 2021. Since the company has now entered into settlement agreement with Boeing, the above said audit qualification will be removed/altered upon the publication of the financial results for quarter ended 31 December 2021.”

“In any event, the resolutions put to vote at the AGM held on 30 December were passed by the majority shareholders voting over 98% in favour, as per the provisions of the Companies Act and the majority of funds voted in favour of both these resolutions.”