Auditor questions Gujarat NRE coking coal’s ‘ability to survive’

MUMBAI: Gujarat NRE Coke's Australian investment has run into serious trouble with the auditor Grant Thornton refusing to give an opinion on the accounts for the year, citing doubts over company's ability to survive as a 'going concern', and inadequate information about its ability to repay debts.

Gujarat NRE Coking Coal, the Australian subsidiary of Kokata-based Gujarat NRE Coke, is being buffeted by losses and workers' strike over unpaid salary after posting pre-tax loss of A$112 million for FY2013 . The metallurgical coal company is also facing financial problems.

Grant Thronton, in a three-page 'basis for disclaimer of opinion', said that it has been unable to "obtain sufficient appropriate audit evidence to provide a basis for an audit opinion".

Thornton says that it has been unable to form an opinion on the valuation and impairment of assets as the management has not submitted an independent valuation to ascertain the extent of impairment. Though the financial report has been prepared on a 'going concern' basis, it is yet unclear whether the firm can survive as a 'going concern' for 12 months from the date of the audit report, August 2013.

The Australian unit has reported a loss of A$112 million and faces a working capital deficit. It has breached loan covenants, owes money to creditors and has not provided any evidence to indicate that it has the ability to raise money to replace existing debts, the auditor says.

The firm owes about A$27.8 million to its ultimate parent and there are doubts whether that money can be recovered. There are similar issues over contingent liabilities, the audit firm has said. Gujarat NRE Coking Coal has to pay A$487.8 million of debts within the year.

Earlier this month, workers at the company's mines in Illawarra, Australia struck work over unpaid salaries. Arun Jagatramka, chairman of Gujarat NRE Coking Coal, told a local newspaper that the firm is recovering and that a proposed $66 million by Jindal SteelBSE -1.48 % & Power would help restore it to financial health.

Delhi-based Jindal Steel and Power owns 31.5% of the Australian unit and has made an offer to increase its stake to 52%. Gujarat NRE Coke's shares have fallen 35% so far this year. They slipped 1% to end at Rs 12.96 on Friday.

Gujarat NRE CokeBSE -4.86 % has not disclosed the adverse audit report of the Australian subsidiary to its shareholders. Its annual accounts for the year-ended March 13 have been prepared only on the basis of unaudited accounts of the subsidiary, which actually accounts for 63% of assets of the Kolkata-based NRE Coke.

"The observations made by the auditors of the Australian subsidiary could not be incorporated in the consolidated statement of the Indian company since financial statements were as on May 2013, whereas the audited accounts of Australian subsidiary are of August 2013," a company spokesperson told ET.
Auditor questions Gujarat NRE coking coal’s ‘ability to survive’ "However, it was transparently disclosed in the consolidated statement of the Indian company that the management committee's approved statement of the Australian subsidiary has been considered," he added.