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Sunday 5 July 2020

Buyers have expressed strong early interest, says Firestar Diamond

Firestar Diamond, which on its website states that its operations span the US, Europe, the Middle East, the Far East and India, blamed liquidity and supply chain challenges

New York: India’s biggest bank fraud accused Nirav Modi’s international jewellery business Firestar Diamond, which has filed for bankruptcy in the US, has told a New York court that potential buyers have expressed strong early interest in the firm.

Modi, his uncle Mehul Choksi and others are being investigated by multiple probe agencies following a complaint by the Punjab National Bank (PNB) that they allegedly cheated the nationalised bank to the tune of over Rs 12,000 crore, with the purported involvement of a few employees of the bank.

Firestar Diamond, Inc filed the Chapter 11 voluntary petition in the New York Southern Bankruptcy Court on Monday, according to the court filing.

Firestar Diamond, which on its website states that its operations span the US, Europe, the Middle East, the Far East and India, blamed liquidity and supply chain challenges.

“Early expressions of interest in purchasing some or all of the” Firestar Diamond Inc’s “business operations have been strong,” company’s sole director Mihir Bhansali said in a filing before a New York court yesterday.

Firestar Diamond, in another court filing, revealed a complex web of companies which said that the majority of the stakes in the company ends up with Modi.

On 26 February, Bhansali had filed for bankruptcy on behalf of three companies Fantasy Diamond Inc, Fantasy Inc, and A Jaffe, Inc, of which he is the president and sole director.

According to the court papers, Firestar Diamond Inc is a wholly owned subsidy of Firestar Group, Inc, a Delaware corporation. FGI is a wholly owned subsidiary of Synergies Corporation, a Delaware corporation. Synergies is a wholly owned subsidiary of Firestar Holdings Limited, a Hong Kong corporation. FHL is a wholly owned subsidiary of Firestar International Limited, an India corporation.

“Nirav Modi directly or indirectly is the majority shareholder of FIL,” it said.

In his 15-page fresh affidavit, Bhansali said recently, authorities in India began attaching, seizing and/or freezing various assets and properties belonging to Modi and properties belonging to various entities in which he had a direct or indirect ownership interest.

“This resulted in the immediate closure of multiple business entities and, by some reports, the loss of thousands of jobs for its employees,” Bhansali said.

Among the properties seized and businesses closed were factories in India which produced most of the fine jewellery merchandise sold by Firestar to their customers, he said, adding that these entities in India also provided certain back office and support functions for the company.

“The sudden loss of its supply chain and back office support has dramatically impacted the operations of the Debtors in the short term,” Bhansali said.

He noted that Firestar, which has its showroom and a global diamond business, has worked tirelessly over the past week or so to procure alternative sources of supply; establish alternate back office and support service functions.

It has also tried to reassure vendors and customers that they had no involvement in the alleged wrongful conduct; and reassure their customers and vendors that they were committed to carrying on their business and that swift action was being taken to mitigate the damage caused by the actions in India.

“The supply chain disruption and negative publicity have dramatically impaired” the business operations in the short term and have created a great deal of uncertainty and confusion in the market about its ability to continue to operate their business as a going concern, Bhansali said.

“Without greater certainty and assurances, certain vendors have expressed a reluctance to continue doing business with” Firestar and “certain customers have begun to explore moving certain of the Debtors’ programmes to other suppliers”.

Bhansali, however, did not identify the vendors who are now backing off. But the court papers do lists out some of the major diamond buyers of Firestar.

According to court papers, FDI and Fantasy currently have jewellery merchandise on consignment with their customers having an aggregate consignment price value of approximately $33,250,000 million.

AJI currently has jewellery merchandise on consignment with its customers having an aggregate consignment price value of approximately $7,300,000.

Bhansali said that during the pendency of these cases, it is its intention to continue to operate their businesses while seeking an infusion of capital or the sale of its businesses, in whole or in parts, as a going concern.

“The Debtors expect that the Chapter 11 process will add a sense of order, alleviate some of the concerns expressed by vendors and customers and create a forum in which potential purchasers for all or some of the businesses are willing to participate,” he said.

According to court papers, Firestar Diamond and Fantasy have approximately $90 million of annual sales to some of the most well-known and well regarded major departmental stores, major speciality stores, chains, wholesale clubs, and United States armed services bases.


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