By Neena Bhandari

Sydney, 15.11.2011 (Business Standard): When industrialist Pankaj Oswal set out to build one of the largest fertiliser plants in the resource rich state of Western Australia, his stellar rise attracted admiration and envy, but today he stands accused of one of biggest corporate frauds in Australia after his Burrup Fertilisers Pty Ltd, a subsidiary of Burrup Holdings, went into receivership last December.

The ANZ Bank, which is trying to recover A$900m in loans, appointed PPB Advisory as the Receivers following ongoing court disputes between Pankaj, who was Burrup’s chairman and managing director, and Norway’s Yara International, a 35 per cent shareholder and customer of the ammonia plant; default events related to debt facilities which were established between 2002 and 2007; and evidence of financial irregularities.

Born with a silver spoon in his mouth, the grandson of one of the great Ludhiana textile magnates and son of Abhey Oswal, he established Burrup Fertilisers Pty Ltd in 2006. The young chemical engineer didn’t take the money from his father, but borrowed from “rich friends” and took loan from banks when he set out in 2000 to set up plant on the rock-strewn Burrup Peninsula in Western Australia.

Burrup Fertilisers Pty Ltd (BFPL) is a private company, formed in Australia in 2000 and backed by the Oswal Group in India. Yara International ASA owns 35 percent of Burrup and is the exclusive marketer of ammonia from the plant. Construction of the company’s AUD 700 million liquid ammonia plant on the Burrup Peninsula, near Karratha in western Australia, began in 2003. Production started in April 2006, and BFPL’s first export shipment was made from the Port of Dampier in June 2006.

Documents filed in the Federal Court in Perth by receivers PPB Advisory in October 2011 allege the former directors transferred more than double the amount of money previously estimated i.e. A$ 210 million from their 65 per cent-owned Burrup Fertilisers to their privately owned overseas companies.

In the first Court documents filed in March 2011, PPB Advisory claimed that the Oswals were required to re-pay A$95 million. They allege Mr Oswal siphoned money out of the company to pay for the couple’s extravagant lifestyle, including luxury cars, a Fairline cabin cruiser, a Gulfstream jet, credit card debts and construction of a home in Western Australia’s Peppermint Grove.

The new statement of claim filed in early October this year repeats earlier allegations that Mr Oswal made payments with company funds toward construction of the family’s $70m mansion in Perth’s, luxury cars, a boat and a corporate jet. But now, PPB alleges that Mr Oswal transferred $51.7m of Burrup Fertilisers funds to a number of Singapore shelf companies “for no consideration and/or benefit”. The amended statement of claim filed by PPB also alleges that a number of other companies issued “inflated invoices” for goods or services that were to be provided to Burrup Fertilisers. The alleged overpayments totalled $61m.

The Federal Court documents list more than 50 transactions made during 2009 and last year. For example, in the case of Oswal Projects, the real value of the work performed was A$462,000, but the actual amount paid was A$7.4m, according to the Federal Court document.

PPB also alleges the Oswals breached their duties under the Corporations Act. Mr Oswal has previously said he was entitled to transfer money to his private companies in exchange for his guaranteeing cost overruns during the construction of the plant. In a statement, he said, ”It is a smokescreen to take the spotlight off PPB’s disastrous handling of the gas sales agreement which has destroyed shareholder value and opened up PPB and its lawyers to massive damages claims”.

A report by accounting firm BDO, commissioned by the Oswals law firm, found that PPB Advisory serving as the receiver for Burrup Fertilisers, charged $5.1 million in fees while spending $50,000 on iPads, $51,000 on entertainment at AFL matches and hundreds of thousands spent on travel and accommodation in only five months, according to an article by Andrew Burrell in The Australian.

In September, Radhika lodged a writ in the Victorian Supreme Court against ANZ’s claim that her husband had forged documents used to guarantee A$1.2 billion in funding from ANZ. The Oswals are contesting the right of lender ANZ Bank to appoint receivers to Burrup Fertilisers. The couple lost the appeal to put the bank’s court action on hold while it contested the validity of the appointment of PPB Advisory.

The Oswals, Pankaj and his wife Radhika, relocated to Dubai from Perth, which has been their home for the past 10 years, after their 65 per cent shareholding in Burrup Holdings was placed in receivership. The Oswals, who have consistently refuted any wrongdoing, have said they look forward to the sale of Burrup Fertilisers which is still a profitable plant. The $1 billion plant produces 759,000T per year.

Mr Oswal, who is seeking a Federal Court inquiry into whether the receivers breached their duties by disclosing confidential documents to potential buyers, is convinced that Yara and the ANZ bank are in collusion in an attempt to force him to sell at an unacceptably low price.

Esben Tuman, Vice President Corporate Communications, Yara International ASA, told Business Standard, “We are comfortable with our rights related to our ownership in Burrup Holdings. The legal proceedings related to the remaining 65 per cent share in Burrup Holdings are multiple and complicated, and there is a risk that these will remain unresolved for some time, unless a settlement is reached. The sales process is run by the bank and the receivers. We are awaiting the outcome of the process, and we are interested in buying the stake, given the right valuation”.

Yara International ASA is the number one global supplier of mineral fertilizers and agronomic solutions

The Receivers still expect the sale process to be concluded before the year end. “We have received over 20 expressions of interest and have narrowed it down to a small group of potential buyers,” a spokesperson for PPB Advisory told Business Standard.

Yara has also contested the legality of the Oswals’ rejecting the Technical Ammonia Nitrates (TAN) project. Burrup Nitrates’, a joint venture between Burrup Holdings and Yara International, proposed TAN plant adjacent to Burrup’s current facility. “Conduct of this nature would breach the Oswals’ duties to act in the best interests of BHL. The Oswals also seem to ignore that BHL has entered into binding commitments with Yara and Yara retains important intellectual property rights needed for the TAN Project,” a company statement said.

Technical Ammonia Nitrate is the main raw material in the production of civil explosives and is widely used by the mining industry. The proposed project is ideally located to serve growing demands for TAN in the Pilbara region.

The Oswals have confirmed they would not support the TAN plant, which could impact on the A$20 billion worth of mining developments in the region. Yara International, has pushed for the project because it would own 65 per cent of the related company, Burrup Nitrate.

The Oswals, who refused Business Standard’s interview request, have come under the spotlight not only for their business dealings but also for their lavish cocktail parties and the A$70 million mansion nicknamed `Taj-on- the Swan’ in the swanky Peppermint Grove suburb of Perth.

It appears income linked to the transfer of the stake into Ms Oswal’s name resulted in the ATO issuing a $71 million income tax bill for 2007. The debt rose by several million dollars in subsequent years with more than $60 million in penalty fees sending the amount to $186 million by August this year, reports the Australian Financial Review.

Radhika, who owns the fast food vegetarian restaurants, Otarian, In London and New York, had told The Western Australian last year that “I think the fact we are not Australians troubles people. What I really liked about Australia was the fact that it was multicultural when I came here, I’m a bit disappointed”.

A spokesperson for the Australian Securities & Investments Commission, which was alerted to the case eight months ago, told Business Standard, “I can confirm we are currently working with the receiver, PPB, and are in the process of assessing information provided”.

At a time when Indian mining and IT companies are looking at investing in Australia in a big way, the Oswal’s dramatic fall will make some uneasy.

Read Pankaj Oswal crash lands on alleged fraud in Australia

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