Business Standard

Indiabulls shifts to survival mode

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Bloomberg Mumbai

Indiabulls Group, the Mumbai-based finance firm funded by billionaire Lakshmi Mittal, is shifting from increasing profitability to “survival’’ after the collapse of Lehman Brothers Holdings Inc. froze credit markets.

The group has slowed lending to small- and medium-sized businesses as credit has dried up, Gagan Banga, Chief Executive Officer of Indiabulls Financial Services Ltd., said in an interview in Mumbai. Indiabulls will cut about 1,000 of its 20,000 staff by not replacing workers who quit, he said.

Banga said his company will survive, though it has put on hold expansion plans that sought to create the nation’s biggest retail brokerage and largest non-bank financial services firm. The failure of Lehman in the largest bankruptcy in U.S. history sparked an exodus of foreign investors from India, created a shortage of dollars and caused the group’s market value to drop 88 per cent this year.

 

''If the US government had bailed out Lehman then the credit markets would not have frozen up the way they did,’’ Banga said. ''Indian companies stopped getting money and they were put in the same bucket as the rest of the world and there is now this mad competition for money.’’

The overnight lending rate soared to a 19-month high of 19.5 per cent on October 31 as banks remained reluctant to lend even as the central bank pumped cash into the system to combat the global credit crisis. While borrowing costs have fallen, lending will remain frozen without state support, Banga said.

''We need directed lending where the government focuses on critical sectors and provides a backstop,’’ he said. ''Six months back I wouldn’t have wanted this but now desperate times need such solutions.’’

Lehman’s collapse accelerated an exodus of Indiabulls’s hedge fund investors, sparking an 87 per cent slump in its real estate stock and an 83 per cent drop in the shares of its financial services company.

Record sales by overseas investors set Indian equities on course for their worst year in at least three decades. Most of Indiabulls’ hedge fund investors have sold the 15 per cent to 20 per cent they held, probably at a loss, Banga said.

Capital World Investors sold 4.29 million shares in September while Goldman Sachs Asian, emerging and BRIC funds collectively sold 2.23 million shares in the same month, according to Bloomberg data.

Still, some investors including ArcelorMittal Chairman Mittal are keeping the faith.

Mittal and Farallon Capital Management LLC are the largest overseas investors in the group, and have funded the brokerage, real estate, financial services and power units, according to Bloomberg data.

Indiabulls Financial is the fifth-largest non-bank finance company by sales while Indiabulls Real Estate is ranked 13 among developers and Indiabulls Securities is the fifth biggest retail broker, according to data compiled by Bloomberg.

While the market rout has wiped off $30 billion of Mittal’s wealth this year, the steel magnate has retained his most- profitable personal investment and isn’t planning to sell his stake, Banga said.

Even as overseas investors including Mittal and Farallon have provided about $2.5 million in funding for Indiabulls, after the credit market seizure that isn’t enough, Banga said.

''If there is one thing that I could have done differently I would have raised more capital,’’ he said. ''I would have been happy if I had raised double the $2.5 billion that I raised at start up.’’

Indiabulls chairman Sameer Gehlaut started the group as an online stock brokerage with two fellow engineering graduates from the Indian Institute of Technology in the capital New Delhi.

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First Published: Nov 20 2008 | 12:00 AM IST

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