India's corporate collapses

Book review of The Meltdown: India Inc's Biggest Implosions

This is a very well-timed volume. In the past decade we have seen some spectacular collapses largely because companies borrowed too much and could not repay. This book looks at some of these cases and how these companies ended up in a debt trap. The cast of characters were once some of the biggest names in Indian business before they defaulted and were embroiled in other controversies. A few of them — Vijay Mallya, Nirav Modi, Mehul Choksi or even Ravi Parthasarathy for instance — fled the country. Some have been arrested — such as the Bhushans. Others are trying hard to put together their once lofty empires — the Dhoots of Videocons and Ruias of Essar are still fighting a battle to salvage whatever they can. Many are under investigation by the Central Bureau Of Investigation, the Enforcement Directorate and Serious Fraud Investigation Office.

Many of these businessmen regularly made news when they were  building their empires. Their lofty ambitions spanned multiple sectors and geographies. A few maintained a lower public profile but were highly influential in the corridors of power. All of them, however, had to suffer public ignominy when it was revealed that they did not have the capacity to repay their loans. 

The goal of the authors was to examine the reasons that caused these businessmen to default on their debt obligations. In many cases, policy changes made rosy projections go awry. In sectors such as telecom, which has seen several bankruptcies, a Supreme Court (SC) judgment dealt a death blow to the corporations that had invested heavily. In some cases, there was outright fraud by the businessman who siphoned off borrowed money until they got caught. 

All the businessmen had longstanding relationships with bankers and policy-makers and managed to get out of sticky situations in the past. They also managed to get loans long after the fundamentals of their business turned sour. But two Reserve Bank of India governors determined to clean up the banking non-performing assets and a new bankruptcy law put an end to their dreams.

The authors do not pass judgement. They stick to the facts. They look at the genesis of the problems and also the last-ditch attempts of the promoters to save their empires. 

The Ruias of Essar, for example, fought till the end to retain control of their flagship — Essar Steel. They even sold off their refinery to cut debt but it was not enough. Then, once Essar Steel was under bankruptcy proceedings, they tried to raise finances and bid once again. They took the battle up to the SC but eventually could not hold on to the company. The Dhoots of Videocon are still trying to retain their empire. The Bhushans — father and two sons — also fought legal battles to delay the inevitable.

The authors  go into the battles fought by rival bidders for the bankrupt companies — especially in the case of the various steel companies that had been referred to the National Company Law Tribunal. The Jindals, the Tatas and the Mittals of ArcelorMittal fought against each other to win these companies. These led to interesting strategies.

The Meltdown: India Inc’s Biggest Implosions

Author: Dev Chatterjee and Sudha Pai Chatterjee

Publisher: Rupa Publications

Pages: 180

Price: Rs 495

In one volume, therefore, you can get a host of facts related to all these cases and it is a great book for basic research on any of these cases, the debt proceedings and the bidding wars. The disappointment from a reader’s perspective comes from three things. First, the authors have tried to cram in too much in too little a space — barely 180 pages. That forced them to stick to the basics and not go into too much history. 

The second disappointment is that there is very little about the dramatis personae.  Businesses are run by people and their stories can never be separated. In this volume, the cases and facts are very well examined — but the people behind them get a most perfunctory look. 

Finally, the very conscious act of not judging the businessmen has its own problems. Many of these businessmen had previous failures that are glossed over. The fact that every Essar company has had debt problems and often managed to get out only because of friendly bankers is dealt with almost in passing. The authors, by sticking to dry facts, leave it to the reader to read between the lines and figure out that much of the problem in India lies in the ability to manipulate policies and manage relationships — debt can be handled as long as you can handle the policy.

The two takeaways from this book are that businessmen in India do not necessarily succeed because they are good businessmen — they do so because they know how to handle the ecosystem. The other is that no story is over until the SC finally pronounces its judgment on the issue — and sometimes the story begins and ends with the SC, as is the case of the telecom bankruptcies.

This is a good book — that could have been a great one.