Showing posts with label Tata. Show all posts
Showing posts with label Tata. Show all posts
Friday, 2 August 2024
Thursday, 1 November 2018
Big Business Strikes Again, this Time Through Modi Government's Assault on RBI
The unprecedented invocation of Section 7 is not in enlightened public interest – it is a brazen move to force the RBI to open bank funding to desperate corporates.
Reserve Bank of India Governor Urjit Patel with former governor Raghuram Rajan in the background. Credit: Reuters/Danish Siddiqui
M K Venu in The Wire.In
Reserve Bank of India Governor Urjit Patel with former governor Raghuram Rajan in the background. Credit: Reuters/Danish Siddiqui
The business cronies of this government have done it again. And they manage such coups each time with unfailing precision. This time, the Centre has taken the unprecedented action of sending a direction to Reserve Bank of India (RBI) under Section 7 of the RBI Act, the first step in a process of virtually issuing a diktat that the central bank must do whatever is necessary to resolve the potential credit freeze in the non-banking finance sector and relax norms for lending to small business.
The RBI over the past year placed lending restrictions on weaker banks, where non-performing assets (NPAs) and other warning indicators were much higher than normal, consequently eroding much of their capital. You can be sure once these norms are relaxed by an RBI under duress, bank funds will start flowing again to the cronies directly or indirectly because moneys are essentially fungible.
I’m told that one celebrated big business promoter from Gujarat, who is known to travel with Prime Minister Narendra Modi on official trips abroad, is currently borrowing short-term money at over 18% to meet his past loan servicing needs.
But once RBI relaxes the current stringent lending norms for banks and adequate liquidity is provided to trapped NBFCs, select big business cronies – owing nearly Rs 4 lakh crore to banks – will continue to get access to funds. In any case, these powerful promoters have managed to avoid going into bankruptcy proceedings as mandated by the RBI’s circular of February 12, 2018. Some of the power projects of the Adani Group, Essar, the Tatas and so on, who have repayment overdues of over Rs 1 lakh crore, are currently being given a fresh lease of life.
So make no mistake, the unprecedented invocation of Section 7 of the RBI Act, never done since independence, not even during the financial crises of 1991 or 2008, is not guided by enlightened public interest as the finance ministry may claim.
It is a brazen move to force the RBI to open bank funding to desperate corporates who need to save themselves so that they are also in a position to give the necessary funds to political parties via anonymous electoral bonds.
Also read: Modi Government Invokes Never-Used Powers to Direct RBI Governor: Reports
These corporate groups and their promoters remain immortal and untouched through all regimes. They manage to get a share of juicy defence contracts even while they owe over Rs 1 lakh crore of overdue loans to banks. Modi will also have to answer why a select group of promoters are getting special treatment by avoiding the RBI circular of February 12, 2018. Is there pressure on the central bank to dilute its rule which mandates that all borrowers above a certain level have to enter bankruptcy proceedings? Is a special dispensation being created for cronies?
These questions will surely haunt the Modi regime in the run-up to the 2019 elections. The sheer power exercised by these business houses is now becoming more and more apparent and naked.
Earlier these powerful forces ran a campaign against Raghuram Rajan and ensured he didn’t get an extension because Rajan had sent a list to the prime minister’s office (PMO) of politically-connected promoters who may have fraudulently diverted bank loans for purposes others than the financing of their projects.
Rajan had asked for a multi-agency probe against these errant promoters because RBI felt it alone did not have the wherewithal to do it. An RTI application by The Wire confirms that the list was sent in 2015 and the PMO is refusing to part with it even to a parliamentary committee headed by BJP leader Murli Manohar Joshi after several reminders.
Also read: Exclusive: RTI Confirms Raghuram Rajan Sent Modi List of NPA Defaulters, Action Taken a Secret
So, it is clear the government is hiding something and is now feeling impelled to get rid of the RBI chief by initiating action under the never-before-used Section 7 provision.
RBI governor Urjit Patel cannot heed the Centre’s directive as it would lower the dignity of the institution and erode the integrity of some of the tough decisions that the central bank has taken to clean up the banks and bring errant promoters to their heels. If Patel quits, India will become a laughing stock among global investors and the money markets could see unprecedented volatility. Remember, in his speech last Friday, deputy governor Viral Acharya had invoked the 2010 Argentine example where the central bank governor there resigned in protest after the regime tried to force him to part with the institution’s reserves to fill the government’s fiscal gap. The markets went for a toss after that in Argentina.
There is a strong parallel here as the finance ministry is also coercing the RBI into parting with a part of its contingency reserves (over Rs. 2.5 lakh crore) to meet the Centre’s growing fiscal deficit in an election year. All this is happening under the shadows of high oil prices, a growing current account deficit and a weakening rupee.
If the RBI governor resigns in these circumstances there could be huge repercussions. The invocation of Section 7 of the RBI Act is, therefore, an act of desperation that is bound to boomerang on the Modi government.
The RBI over the past year placed lending restrictions on weaker banks, where non-performing assets (NPAs) and other warning indicators were much higher than normal, consequently eroding much of their capital. You can be sure once these norms are relaxed by an RBI under duress, bank funds will start flowing again to the cronies directly or indirectly because moneys are essentially fungible.
I’m told that one celebrated big business promoter from Gujarat, who is known to travel with Prime Minister Narendra Modi on official trips abroad, is currently borrowing short-term money at over 18% to meet his past loan servicing needs.
But once RBI relaxes the current stringent lending norms for banks and adequate liquidity is provided to trapped NBFCs, select big business cronies – owing nearly Rs 4 lakh crore to banks – will continue to get access to funds. In any case, these powerful promoters have managed to avoid going into bankruptcy proceedings as mandated by the RBI’s circular of February 12, 2018. Some of the power projects of the Adani Group, Essar, the Tatas and so on, who have repayment overdues of over Rs 1 lakh crore, are currently being given a fresh lease of life.
So make no mistake, the unprecedented invocation of Section 7 of the RBI Act, never done since independence, not even during the financial crises of 1991 or 2008, is not guided by enlightened public interest as the finance ministry may claim.
It is a brazen move to force the RBI to open bank funding to desperate corporates who need to save themselves so that they are also in a position to give the necessary funds to political parties via anonymous electoral bonds.
Also read: Modi Government Invokes Never-Used Powers to Direct RBI Governor: Reports
These corporate groups and their promoters remain immortal and untouched through all regimes. They manage to get a share of juicy defence contracts even while they owe over Rs 1 lakh crore of overdue loans to banks. Modi will also have to answer why a select group of promoters are getting special treatment by avoiding the RBI circular of February 12, 2018. Is there pressure on the central bank to dilute its rule which mandates that all borrowers above a certain level have to enter bankruptcy proceedings? Is a special dispensation being created for cronies?
These questions will surely haunt the Modi regime in the run-up to the 2019 elections. The sheer power exercised by these business houses is now becoming more and more apparent and naked.
Earlier these powerful forces ran a campaign against Raghuram Rajan and ensured he didn’t get an extension because Rajan had sent a list to the prime minister’s office (PMO) of politically-connected promoters who may have fraudulently diverted bank loans for purposes others than the financing of their projects.
Rajan had asked for a multi-agency probe against these errant promoters because RBI felt it alone did not have the wherewithal to do it. An RTI application by The Wire confirms that the list was sent in 2015 and the PMO is refusing to part with it even to a parliamentary committee headed by BJP leader Murli Manohar Joshi after several reminders.
Also read: Exclusive: RTI Confirms Raghuram Rajan Sent Modi List of NPA Defaulters, Action Taken a Secret
So, it is clear the government is hiding something and is now feeling impelled to get rid of the RBI chief by initiating action under the never-before-used Section 7 provision.
RBI governor Urjit Patel cannot heed the Centre’s directive as it would lower the dignity of the institution and erode the integrity of some of the tough decisions that the central bank has taken to clean up the banks and bring errant promoters to their heels. If Patel quits, India will become a laughing stock among global investors and the money markets could see unprecedented volatility. Remember, in his speech last Friday, deputy governor Viral Acharya had invoked the 2010 Argentine example where the central bank governor there resigned in protest after the regime tried to force him to part with the institution’s reserves to fill the government’s fiscal gap. The markets went for a toss after that in Argentina.
There is a strong parallel here as the finance ministry is also coercing the RBI into parting with a part of its contingency reserves (over Rs. 2.5 lakh crore) to meet the Centre’s growing fiscal deficit in an election year. All this is happening under the shadows of high oil prices, a growing current account deficit and a weakening rupee.
If the RBI governor resigns in these circumstances there could be huge repercussions. The invocation of Section 7 of the RBI Act is, therefore, an act of desperation that is bound to boomerang on the Modi government.
Thursday, 22 December 2016
Corruption and the Tata empire
Geeta Anand in The New York Times
In India, where corruption is a fact of life, the Tata Group — a powerhouse conglomerate that makes Land Rovers, operates the historic Pierre Hotel in New York and sells the world Tetley tea — has been held up as the exception to the rule.
Its patriarch, Ratan Tata, 78, is a revered figure here, a cross between Warren E. Buffett and Bill Gates whom even schoolchildren know and look up to as Mr. Clean — the billionaire whose family built its name in part on zero tolerance for corruption.
His company symbolizes the role an ascendant India sees for itself on the global stage. In 2010 Mr. Tata arranged a $50 million donation to the Harvard Business School, the school’s largest gift from an international donor, and its dean sits on the board of the empire’s umbrella organization, Tata Sons. Mr. Tata has been knighted by Queen Elizabeth.
Now, however, Mr. Tata is caught up in a nasty public fight for control of the business — with the man he had chosen to succeed him as chairman. The company finds itself defending against serious allegations of wrongdoing.
Some of the claims have been raised by his chosen successor, Cyrus Mistry. Mr. Tata ousted Mr. Mistry in late October, saying it was necessary because “the board of Tata Sons lost confidence in him and in his ability to lead the Tata Group in the future.”
Mr. Mistry, 48, told Tata’s board in a letter that an internal audit indicated that its airline joint venture, AirAsia, had made more than $3 million in “fraudulent transactions” with two companies. In recent days, India’s Directorate of Enforcement has started an investigation into the AirAsia payments. The directorate did not respond to requests for comment.
“Never before has the Tata Group, including the philanthropic objectives of the Tata Trusts, been in jeopardy to this extent and scale,” Mr. Mistry said in a public statement this month. He said he was fighting “to protect the Tata Group from capricious decision-making by the interim chairman,” a reference to Mr. Tata.
Separately, on Friday, a crusading member of India’s Parliament, Subramanian Swamy, called in a court complaint for an investigation into allegations from a government report that Mr. Tata in 2008 used a front company to apply for a telecommunications license, potentially circumventing the limits on the number of licenses one investor could hold. This is alleged to have happened at a time of furious maneuvering among companies trying to win the rights to offer cellphone service in India — a battle that resulted in one of India’s biggest corruption scandals ever.
Ultimately the scandal helped sweep India’s founding political party, the Congress party, from power in an epic defeat.
The New York Times has reviewed government documents showing that India’s Serious Fraud Investigation Office recommended prosecuting Mr. Tata in 2013. For reasons that are not clear, the government did not file a case in court.
Ratan Tata, the patriarch of the Tata Group, in Mumbai in 2009. The conglomerate’s many elements include a leading manufacturer of trucks. CreditKunal Patil/Hindustan Times, via Getty Images
The fraud office documents, which Mr. Swamy filed as part of his court complaint, say that the Tata Group invested $250 million in eight subsidiaries of a real estate firm, Unitech — a sum roughly equivalent to the telecom license application fee. Unitech used that money to apply for a license on Tata’s behalf, the report from the government’s fraud office said.
A Tata spokesman said the company made “a bona fide real estate deal” with Unitech unrelated to telecom licenses, adding that “no evidence was found which could be attributed to any criminality.”
The Tata Group was started in 1868, when the British ruled the Indian subcontinent. The founder, Jamsetji Tata, was a descendant of Persian immigrants, known as Parsis, who form a tiny and vibrant community in Mumbai. He began with a trading business, and over the decades the company grew — building India’s first steel mill, its first hydroelectric power station, its first locally made trains and its first airline.
In 1903, Mr. Tata opened India’s first luxury hotel serving Indians, the Taj Mahal Palace Hotel, which is today considered a national landmark. In 2008 the hotel was one of the targets of the dayslong Mumbai terrorist attack by Pakistani infiltrators that shocked India and the world.
The company today has its hand in almost every business imaginable, from consulting to automobiles. Ratan Tata, the cousin of his predecessor, took over the company in 1991 at the age of 53. He became the group’s fifth chairman. He widened the group’s international presence, acquiring Corus Group, the Anglo-Dutch steel company, in 2007 and the Jaguar and Land Rover brands in 2008.
Mr. Mistry — the first non-Tata family member to lead the nearly 150-year-old company — was elevated in 2012 after a two-year search. However, in India’s tight-knit Parsi community, the ties can be close. Mr. Mistry’s family, which owns a major construction business, was the biggest shareholder in Tata Sons, with 18 percent, and Mr. Mistry had been on the board since 2006. His sister is married to Mr. Tata’s half brother.
According to several people close to Mr. Mistry, the relationship between him and Mr. Tata soured in part because Mr. Mistry had begun reining in some favors that the company had previously extended to Mr. Tata’s personal friends.
In one instance, after Mr. Mistry raised the issue, the Tata board explored starting legal proceedings against C. Sivasankaran, a longtime friend and close business associate of Mr. Tata’s, to try to recover $100 million the company said it was owed from a telecom deal. Mr. Sivasankaran also had been renting a 5,300-square-foot penthouse for $11,000, less than half the market rent, from the company, according to correspondence reviewed by The Times. Mr. Mistry raised his rent to the market rate.
Mr. Sivasankaran, in an interview, said he was indeed a friend of Mr. Tata’s. He said, though, that he had suffered financially from the investment and had no intention of paying back the $100 million he owed.
“I don’t want to pay it because Tata has not managed the company properly,” he said. “Siva is alleging the Tata Group does not have management skills,” Mr. Sivasankaran said, referring to himself in the third person.
He also confirmed that he was ousted from the luxury apartment. Mr. Sivasankaran said he had a long-term contract to stay there, so he could have fought to stay, but decided to go quietly.
Another issue at Tata involved no-bid dredging, shipping and barge contracts granted to companies belonging to another of Mr. Tata’s longtime friends, Mehli Mistry, according to three people who have reviewed company documents. (He and Cyrus Mistry, the ousted Tata executive, are cousins.) Cyrus Mistry allowed the contracts to be put up for bid once they expired, according to the people who have reviewed the documents.Continue reading the main story
Photo
Outside a Tata Motors plant in Pune, India. CreditAtul Loke for The New York Times
A Tata Group spokesman referred questions to Tata Power, the unit that made the contracts. Tata Power did not respond to requests for comment.
Mehli Mistry, through a lawyer, said that the contracts were not the result of his friendship with Mr. Tata, and disputed that they were not fairly valued.
The Cellphone Allegations
From a corporate perspective, the most consequential allegations regarding Mr. Tata and the group are those contained in the 33-page report from the Serious Fraud Investigation Office asserting that Mr. Tata’s group was the real applicant behind a telecom license secured by Unitech, the New Delhi real estate company.
A decade ago, India pried open its notoriously dysfunctional telecom market. In the days before deregulation, it could take a customer years just to get a new phone number. People would hang on to their phone lines like family jewels and hand them down to relatives.
Against that backdrop, investors saw a once-in-a-generation opportunity to build an Indian phone empire. But applicants could seek only one license. And the Tata Group had already applied for a different one.
The report says that Tata, “desperate to acquire the license,” used Unitech as its front in pursuit of a second license.
Unitech was one of the eight companies granted licenses in 2008. But the Supreme Court later ruled all the licenses illegal, in part because government investigations said that the licensing fee paid by the companies was substantially below market rates.
Fourteen people — including India’s former telecom minister and several Unitech officials — have been on trial in a special court on charges of cheating the government by underselling the licenses. A verdict is expected early next year. All have said they are not guilty.
Prashant Bhushan, a lawyer and anti-corruption activist, in 2014 submitted to the Supreme Court the government’s fraud investigation report charging that the Tata Group used Unitech as a front for its telecom application. He urged the court to direct the Central Bureau of Investigation to take up the case.
Mr. Bhushan also charges in the court petition that the Tata Group, in “glaring evidence of an apparent quid pro quo” for a telecom license, transferred property valued at tens of millions of dollars to the family at the helm of the political party of the telecommunications minister at the time.
Mr. Bhushan’s actions are still pending before the court.
A. Raja, the former telecom minister, declined to comment. A spokesman for his political party could not be reached.
The bureau of investigation did not respond to requests for comment. Vivek Priyadarshi, the bureau’s investigating officer in the case at that time, declined to discuss its conclusions.
In India, where corruption is a fact of life, the Tata Group — a powerhouse conglomerate that makes Land Rovers, operates the historic Pierre Hotel in New York and sells the world Tetley tea — has been held up as the exception to the rule.
Its patriarch, Ratan Tata, 78, is a revered figure here, a cross between Warren E. Buffett and Bill Gates whom even schoolchildren know and look up to as Mr. Clean — the billionaire whose family built its name in part on zero tolerance for corruption.
His company symbolizes the role an ascendant India sees for itself on the global stage. In 2010 Mr. Tata arranged a $50 million donation to the Harvard Business School, the school’s largest gift from an international donor, and its dean sits on the board of the empire’s umbrella organization, Tata Sons. Mr. Tata has been knighted by Queen Elizabeth.
Now, however, Mr. Tata is caught up in a nasty public fight for control of the business — with the man he had chosen to succeed him as chairman. The company finds itself defending against serious allegations of wrongdoing.
Some of the claims have been raised by his chosen successor, Cyrus Mistry. Mr. Tata ousted Mr. Mistry in late October, saying it was necessary because “the board of Tata Sons lost confidence in him and in his ability to lead the Tata Group in the future.”
Mr. Mistry, 48, told Tata’s board in a letter that an internal audit indicated that its airline joint venture, AirAsia, had made more than $3 million in “fraudulent transactions” with two companies. In recent days, India’s Directorate of Enforcement has started an investigation into the AirAsia payments. The directorate did not respond to requests for comment.
“Never before has the Tata Group, including the philanthropic objectives of the Tata Trusts, been in jeopardy to this extent and scale,” Mr. Mistry said in a public statement this month. He said he was fighting “to protect the Tata Group from capricious decision-making by the interim chairman,” a reference to Mr. Tata.
Separately, on Friday, a crusading member of India’s Parliament, Subramanian Swamy, called in a court complaint for an investigation into allegations from a government report that Mr. Tata in 2008 used a front company to apply for a telecommunications license, potentially circumventing the limits on the number of licenses one investor could hold. This is alleged to have happened at a time of furious maneuvering among companies trying to win the rights to offer cellphone service in India — a battle that resulted in one of India’s biggest corruption scandals ever.
Ultimately the scandal helped sweep India’s founding political party, the Congress party, from power in an epic defeat.
The New York Times has reviewed government documents showing that India’s Serious Fraud Investigation Office recommended prosecuting Mr. Tata in 2013. For reasons that are not clear, the government did not file a case in court.
Ratan Tata, the patriarch of the Tata Group, in Mumbai in 2009. The conglomerate’s many elements include a leading manufacturer of trucks. CreditKunal Patil/Hindustan Times, via Getty Images
The fraud office documents, which Mr. Swamy filed as part of his court complaint, say that the Tata Group invested $250 million in eight subsidiaries of a real estate firm, Unitech — a sum roughly equivalent to the telecom license application fee. Unitech used that money to apply for a license on Tata’s behalf, the report from the government’s fraud office said.
A Tata spokesman said the company made “a bona fide real estate deal” with Unitech unrelated to telecom licenses, adding that “no evidence was found which could be attributed to any criminality.”
The Tata Group was started in 1868, when the British ruled the Indian subcontinent. The founder, Jamsetji Tata, was a descendant of Persian immigrants, known as Parsis, who form a tiny and vibrant community in Mumbai. He began with a trading business, and over the decades the company grew — building India’s first steel mill, its first hydroelectric power station, its first locally made trains and its first airline.
In 1903, Mr. Tata opened India’s first luxury hotel serving Indians, the Taj Mahal Palace Hotel, which is today considered a national landmark. In 2008 the hotel was one of the targets of the dayslong Mumbai terrorist attack by Pakistani infiltrators that shocked India and the world.
The company today has its hand in almost every business imaginable, from consulting to automobiles. Ratan Tata, the cousin of his predecessor, took over the company in 1991 at the age of 53. He became the group’s fifth chairman. He widened the group’s international presence, acquiring Corus Group, the Anglo-Dutch steel company, in 2007 and the Jaguar and Land Rover brands in 2008.
Mr. Mistry — the first non-Tata family member to lead the nearly 150-year-old company — was elevated in 2012 after a two-year search. However, in India’s tight-knit Parsi community, the ties can be close. Mr. Mistry’s family, which owns a major construction business, was the biggest shareholder in Tata Sons, with 18 percent, and Mr. Mistry had been on the board since 2006. His sister is married to Mr. Tata’s half brother.
According to several people close to Mr. Mistry, the relationship between him and Mr. Tata soured in part because Mr. Mistry had begun reining in some favors that the company had previously extended to Mr. Tata’s personal friends.
In one instance, after Mr. Mistry raised the issue, the Tata board explored starting legal proceedings against C. Sivasankaran, a longtime friend and close business associate of Mr. Tata’s, to try to recover $100 million the company said it was owed from a telecom deal. Mr. Sivasankaran also had been renting a 5,300-square-foot penthouse for $11,000, less than half the market rent, from the company, according to correspondence reviewed by The Times. Mr. Mistry raised his rent to the market rate.
Mr. Sivasankaran, in an interview, said he was indeed a friend of Mr. Tata’s. He said, though, that he had suffered financially from the investment and had no intention of paying back the $100 million he owed.
“I don’t want to pay it because Tata has not managed the company properly,” he said. “Siva is alleging the Tata Group does not have management skills,” Mr. Sivasankaran said, referring to himself in the third person.
He also confirmed that he was ousted from the luxury apartment. Mr. Sivasankaran said he had a long-term contract to stay there, so he could have fought to stay, but decided to go quietly.
Another issue at Tata involved no-bid dredging, shipping and barge contracts granted to companies belonging to another of Mr. Tata’s longtime friends, Mehli Mistry, according to three people who have reviewed company documents. (He and Cyrus Mistry, the ousted Tata executive, are cousins.) Cyrus Mistry allowed the contracts to be put up for bid once they expired, according to the people who have reviewed the documents.Continue reading the main story
Photo
Outside a Tata Motors plant in Pune, India. CreditAtul Loke for The New York Times
A Tata Group spokesman referred questions to Tata Power, the unit that made the contracts. Tata Power did not respond to requests for comment.
Mehli Mistry, through a lawyer, said that the contracts were not the result of his friendship with Mr. Tata, and disputed that they were not fairly valued.
The Cellphone Allegations
From a corporate perspective, the most consequential allegations regarding Mr. Tata and the group are those contained in the 33-page report from the Serious Fraud Investigation Office asserting that Mr. Tata’s group was the real applicant behind a telecom license secured by Unitech, the New Delhi real estate company.
A decade ago, India pried open its notoriously dysfunctional telecom market. In the days before deregulation, it could take a customer years just to get a new phone number. People would hang on to their phone lines like family jewels and hand them down to relatives.
Against that backdrop, investors saw a once-in-a-generation opportunity to build an Indian phone empire. But applicants could seek only one license. And the Tata Group had already applied for a different one.
The report says that Tata, “desperate to acquire the license,” used Unitech as its front in pursuit of a second license.
Unitech was one of the eight companies granted licenses in 2008. But the Supreme Court later ruled all the licenses illegal, in part because government investigations said that the licensing fee paid by the companies was substantially below market rates.
Fourteen people — including India’s former telecom minister and several Unitech officials — have been on trial in a special court on charges of cheating the government by underselling the licenses. A verdict is expected early next year. All have said they are not guilty.
Prashant Bhushan, a lawyer and anti-corruption activist, in 2014 submitted to the Supreme Court the government’s fraud investigation report charging that the Tata Group used Unitech as a front for its telecom application. He urged the court to direct the Central Bureau of Investigation to take up the case.
Mr. Bhushan also charges in the court petition that the Tata Group, in “glaring evidence of an apparent quid pro quo” for a telecom license, transferred property valued at tens of millions of dollars to the family at the helm of the political party of the telecommunications minister at the time.
Mr. Bhushan’s actions are still pending before the court.
A. Raja, the former telecom minister, declined to comment. A spokesman for his political party could not be reached.
The bureau of investigation did not respond to requests for comment. Vivek Priyadarshi, the bureau’s investigating officer in the case at that time, declined to discuss its conclusions.
Photo
Mr. Tata and, sitting behind him, his chosen successor, Cyrus Mistry, at an auto expo in New Delhi in 2012.CreditJasjeet Plaha/Hindustan Times, via Getty Images
India Opens Its Skies
In 2012, India allowed its cash-starved airlines to accept investments from foreign carriers, as long as an Indian partner retained control. Yet another Indian market — jet travel — suddenly looked sexier. Tata and others raced in.
Tata teamed up with AirAsia Berhad, a budget airline from Malaysia, and set up AirAsia India. This happened during Cyrus Mistry’s tenure — but he has distanced himself from the deal. In a letter to the Tata board after his ouster, he said that he opposed the deal, but that Mr. Tata pressured him to proceed, and that Mr. Tata himself negotiated the terms with AirAsia.
“My pushback was hard but futile,” Mr. Mistry said in the letter, which The Times has reviewed.
The allegations of questionable payments to two companies came after whistle-blower complaints prompted AirAsia’s board to order a forensic audit. That audit, delivered by Deloitte India in September and reviewed by The Times, identified the payment of more than $3 million to two such companies. Neither company appears to have offices, the audit found.
Mr. Mistry had shared the audit summary with the Tata Sons board members before the October meeting when he was fired, a person close to Mr. Mistry said.
A spokesman for Tata referred questions to AirAsia, which did not respond.
Friends in Business
At the time of Mr. Mistry’s ouster, he was also confronting an issue with Mr. Tata’s friend, Mr. Sivasankaran, whose company owed the Tata Group more than $100 million.
Mr. Sivasankaran in 2006 had invested in a Tata telecom start-up that also received a big investment from NTT DoCoMo, a Japanese company. In 2014, DoCoMo exercised its right to sell back its shares to Tata. The money Mr. Sivasankaran refuses to pay back represents his portion of that buyback expense, according to correspondence between the two sides.
Mr. Sivasankaran, in an interview, said he had invested in the company purely out of friendship with Mr. Tata. He said neither he nor anyone else had influenced Mr. Tata’s decision to fire Mr. Mistry.
A spokesman for Tata said it was pursuing “all legal options” to recover the money.
Mr. Tata’s friend Mehli Mistry maintained a lengthy financial relationship with the Tata Group. Over the last two decades, his companies were granted contracts for dredging, barging and shipping by Tata Power, often renewing them without a bidding process.
But after Cyrus Mistry took over, Tata Power put Mehli Mistry’s contracts out to bid. Other companies won those contracts, according to two people familiar with the bidding process.
Mehli Mistry was so disappointed at losing the contracts that he sent a message this year to Cyrus Mistry through a family member, people close to the former executive said. A person familiar with the message said that Mehli Mistry told Cyrus Mistry to stop interfering in his contracts or he would take steps to defend himself.
People close to Cyrus Mistry say he thinks his ouster was, in part, Mehli Mistry’s retaliation. In his letter to the board, Cyrus Mistry wrote, “I had to ease out hangers-on.”
Mehli Mistry, his lawyer said, “emphatically denied” sending any message regarding contracts to Cyrus Mistry and played no role in his ouster.
Mr. Tata and, sitting behind him, his chosen successor, Cyrus Mistry, at an auto expo in New Delhi in 2012.CreditJasjeet Plaha/Hindustan Times, via Getty Images
India Opens Its Skies
In 2012, India allowed its cash-starved airlines to accept investments from foreign carriers, as long as an Indian partner retained control. Yet another Indian market — jet travel — suddenly looked sexier. Tata and others raced in.
Tata teamed up with AirAsia Berhad, a budget airline from Malaysia, and set up AirAsia India. This happened during Cyrus Mistry’s tenure — but he has distanced himself from the deal. In a letter to the Tata board after his ouster, he said that he opposed the deal, but that Mr. Tata pressured him to proceed, and that Mr. Tata himself negotiated the terms with AirAsia.
“My pushback was hard but futile,” Mr. Mistry said in the letter, which The Times has reviewed.
The allegations of questionable payments to two companies came after whistle-blower complaints prompted AirAsia’s board to order a forensic audit. That audit, delivered by Deloitte India in September and reviewed by The Times, identified the payment of more than $3 million to two such companies. Neither company appears to have offices, the audit found.
Mr. Mistry had shared the audit summary with the Tata Sons board members before the October meeting when he was fired, a person close to Mr. Mistry said.
A spokesman for Tata referred questions to AirAsia, which did not respond.
Friends in Business
At the time of Mr. Mistry’s ouster, he was also confronting an issue with Mr. Tata’s friend, Mr. Sivasankaran, whose company owed the Tata Group more than $100 million.
Mr. Sivasankaran in 2006 had invested in a Tata telecom start-up that also received a big investment from NTT DoCoMo, a Japanese company. In 2014, DoCoMo exercised its right to sell back its shares to Tata. The money Mr. Sivasankaran refuses to pay back represents his portion of that buyback expense, according to correspondence between the two sides.
Mr. Sivasankaran, in an interview, said he had invested in the company purely out of friendship with Mr. Tata. He said neither he nor anyone else had influenced Mr. Tata’s decision to fire Mr. Mistry.
A spokesman for Tata said it was pursuing “all legal options” to recover the money.
Mr. Tata’s friend Mehli Mistry maintained a lengthy financial relationship with the Tata Group. Over the last two decades, his companies were granted contracts for dredging, barging and shipping by Tata Power, often renewing them without a bidding process.
But after Cyrus Mistry took over, Tata Power put Mehli Mistry’s contracts out to bid. Other companies won those contracts, according to two people familiar with the bidding process.
Mehli Mistry was so disappointed at losing the contracts that he sent a message this year to Cyrus Mistry through a family member, people close to the former executive said. A person familiar with the message said that Mehli Mistry told Cyrus Mistry to stop interfering in his contracts or he would take steps to defend himself.
People close to Cyrus Mistry say he thinks his ouster was, in part, Mehli Mistry’s retaliation. In his letter to the board, Cyrus Mistry wrote, “I had to ease out hangers-on.”
Mehli Mistry, his lawyer said, “emphatically denied” sending any message regarding contracts to Cyrus Mistry and played no role in his ouster.
Thursday, 23 June 2016
The biggest ever fire sale of Indian corporate assets has begun, to tide over bad loans crisis
Piyush Pandey in The Hindu
The Reserve Bank of India’s (RBI) has decided to clean up the balance sheets of Indian banks, which are collectively saddled with Rs five lakh crore of bad loans, by the end of this fiscal. So, the banks have started cracking the whip on Indian companies for repayment of loans. For most affected firms and groups, this will mean they will be forced to sell prized assets to repay their ballooning debts.
We are seeing ‘for sale’ tags on airports, roads, ports, steel plants, cement units, refineries, malls, corporate parks, land banks, coal mines, oil blocks, express highways, airwaves, Formula One teams, hotels, private jets, and even status symbol corporate HQs. Substantial stakes in firms, and in some cases entire companies, are on the block.
The Hindu reviewed leading corporate houses with billion-dollar loans riding on them, and the results are startling. The top 10 business house debtors alone owe Rs 5,00,000 crore to the banks. They will be forced to sell assets worth over Rs 2,00,000 crore.
Reliance Group (Anil Ambani)
The Anil Ambani-led Reliance Group alone owes Rs 1,21,000 crore of loans to the banks and had an annual interest liability of Rs 8,299 crore against earnings before income tax of Rs 9,848 crore. Some of the group’s firms, like Reliance Infrastructure and Reliance Defence, don’t earn enough to service the interest outgo.
Assets put on sale by the Reliance Group include about 44,000 telecommunications towers (valued at Rs 22,000 crore) and optic fibre and related infrastructure (Rs 8,000 crore) from Reliance Communications (RCom), its flagship firm. Weighed down by about Rs 40,000 crore of debt, RCom has posted a loss of Rs 154 crore in FY14-15, and has continued to post losses in the first three quarters of FY 15-16, accumulating losses of over Rs 2000 crore until December 31, 2015; it is likely to end that fiscal with a net loss too. The company is valued at Rs 13,440 crore, less than a third of its total debts. However, RCom plans to reduce its debts to Rs 10,000 by selling Rs 30,000 crore of telecom assets.
Reliance Infrastructure (R-Infra) is sitting on a pile of debt of Rs 25,000 crore as of February. In November 2015, it agreed to sell a 49 per cent stake in its electricity generation, transmission and distribution business in Mumbai and adjoining areas to Canadian pension fund Public Sector Pension Investment Board (PSP Investments). The transaction is expected to reduce debt of Rs.7,000 crore attached to the distribution business. It agreed to sell its cement business to Birla Corporation for Rs 4,800 crore in February, and is looking to sell its entire roads portfolio, valued at Rs 9,000 crore, for which three international bidders have been short-listed. R-Infra’s EBIT stands at Rs 1,686 crore, against interest liability of Rs 1,974 crore. Its market capitalisation at Rs 14,476 crore is Rs 10,000 crore lower than its debt. By sale, of cement, road and the Mumbai power distribution businesses, the company expects to be debt free on standalone basis by the end of this fiscal.
Reliance Capital, with debt of Rs 24,000 crore has sold stakes, in phases, in its mutual fund and life insurance businesses to Nippon Life Insurance for Rs 3,461 crore to allow the latter to increase its stake to 49 per cent in each of the businesses. It further plans to raise another Rs 4,000 crore by the end of 2016-17 by selling non-core assets, including proprietary investment book and by inducting a partner in its general insurance business. Reliance Capital’s debt includes its lending portfolio – commercial lending and housing finance- of about Rs 18,000 crore and claims to have a debt-equity ratio of 1.77, the lowest in the industry, as of December 31, 2015.
Mr Ambani is also looking to exit the media and entertainment businesses, under Reliance Broadcast Network Ltd (RBNL), for Rs 1,500 –Rs 2,000 crore.
His foray into defence — the recently-acquired Pipavav Defence & Offshore Engineering, rechristened Reliance Defence — is sitting on debt of Rs 6,800 crore against its current market capitalisation of Rs 4,895 crore. The loss-making company with negative EBIT of Rs 306 crore has an interest liability of Rs 347 crore a year.
Ruia’s Essar group (Shashi and Ravi Ruia)
Shashi and Ravi Ruia’s Essar group has gross debt of Rs 1,01,461 crore. The group is looking to sell about 50 per cent stake of its family silver, i.e., Essar Oil’s 20mtpa (million tonnes per annum) Vadinar refinery, for Rs 25,000 crore. It also plans to bring in a financial partner for its 10mtpa steel business that currently has a debt of Rs 40,000 crore; a 49 per cent stake in the steel facility will be valued at about Rs 25,000 crore. The debt-laden group is also looking to sell stake in its ports business. Essar Steel and Essar Oil each account for one-third of the group debt, and Essar Power, one-fifth.
Adani group (Gautam Adani)
The billionaire Gautam Adani’s Adani group, with Rs 96,031 crore debt, is under pressure to sell its stake in the Abbott Point coal mines, port and rail project. The Adani Group’s debt stands at Rs. 72,000 crore. Last year, Standard Chartered bank had recalled loans amounting to $2.5 billion as part of its global policy of reducing exposure in emerging markets. Global lenders have backed out from funding the $10-billion coal mine development project. State Bank of India has also declined to offer a loan despite signing an MoU to fund the group with $1 billion. An Adani spokesperson declined to offer any comments on the issue.
Jaypee group (Manoj Gaur)
Manoj Gaur’s Jaypee group’s debt is over Rs 75,000 crore. The group has agreed to sell its 20mtpa of cement assets to Kumar Birla-led Ultratech for Rs 15,900 crore. This will leave its listed entities with about 6mtpa of cement capacity, three thermal power plants, one hydropower plant, an expressway project and land parcels. It is looking to sell most of these assets at the right price, but buyers are not easy to come by. Aside from selling stake in its land parcels and the Yamuna Express Highway, the group is looking to sell its remaining cement plants for Rs 4,000 crore and its Bina thermal power plant for Rs 3,500 crore. In the last year, the group has defaulted on payment obligations worth $350 million. Analysts say its capacity to service its debt has not improved.
GMR group (GM Rao)
G.M. Rao’s GMR group was one of the first debt-ridden companies to sell off assets; it has already offloaded stake worth Rs 11,000 crore in its roads, power and coal assets in the last two years. Despite this, its total debt has actually gone up: from Rs 42,349 crore at the end of FY13 to Rs 47,738 as of March, 2015. The group is planning to raise about Rs 5,000 crore this year by selling land parcels, energy assets and stake in airport subsidiary. Last month, it announced it was selling part of a road project in Karnataka, to help reduce debt by more than Rs 1,000 crore. It also plans to sell 30 per cent of its stake in its airport arm, which is valued about Rs 10,000 crore.
Lanco group (L Madhusudhan Rao)
The Lanco group has debts of Rs 47,102 crore. It completed the sale of its Udupi plant in FY16 for Rs 6,300 crore (15 per cent of FY15 debt). Debt levels have continued to rise, up 6 per cent in FY15. The group plans to sell power assets worth Rs 25,000 crore to de-leverage its balance sheet and retire debts of about Rs 18,000 crore. It is also planning to sell a one-third stake in the Australian coal mine it acquired in 2011 for $750 million.
Videocon group (Venugopal Dhoot)
Despite the Videocon group selling its stake in its Mozambique gas fileds for Rs 15,000 crore, gross debt has continued to rise: it is up 10 per cent year-on-year to Rs 45,405 crore, while net debt has remained largely flat at Rs 39,600 crore. Last month, it sold its spectrum to Bharti Airtel for Rs 4,600 crore. “If you minus last month’s spectrum sale amount of Rs 4,600 crore which will be paid directly to the banks, then debt comes to Rs.34,000 crore. To decrease debt further, we will be liquidating assets worth Rs 5,000 crore this year so the net debt of the group will be around Rs 29,000 crore,” Videocon Industries chairman Venugopal Dhoot told The Hindu adding that out of this net debt, Rs.21,000 crore has been taken for oil and gas ventures in Brazil, Indonesia and across the globe, where the group and ita partners have discovered oil and gas reserves. So, domestic debt of around Rs 8,000 crore will be serviced.
GVK group (G.V. Krishna Reddy)
To repay some of its debt of Rs 34,000 crore, the GVK group is in talks to sell 49 per cent of its airport subsidiary, which has an enterprise value of Rs 10,000 crore. Last month, it agreed to divest its 33 per cent stake in BIAL to Fairfax India Holdings Corp for an aggregate investment of Rs 2,149 crore. The company is also exploring the possibility of bringing in equity investors into Hancock Infrastructure Pvt Ltd, its holding company for its rail and port projects in Australia. A GVK spokesperson in reply to an e-mail query by The Hindu said, “As part of our corporate policy, we do not comment on any speculation in the media. While it's public knowledge that we are considering various options for reducing our debt, we regret we cannot respond to any of your queries.”
Reliance Industries (Mukesh Ambani)
India’s largest debtor, Mukesh Ambani’s Reliance Industries (RIL), has a total debt of Rs 1,87,079 crore (up from Rs 62,500 crore as on March 31, 2010, mainly because of the Rs 1,50,000 crore roll-out of Reliance Jio), the biggest among all corporate houses, and the largest ever in Indian corporate history. But it’s also one of the best-rated firms in servicing its interest, so banks are happy to offer RIL loans at competitive rates. Analysts believe that huge debt may weigh down the profitability due to interest outgo and depreciation after the commercial roll-out of Reliance Jio, if it is not able to scale up quickly.
| Company | Gross debt (2014-15) | Assets for sale (Rs.Cr) |
| Reliance Industries (Mukesh Ambani) | 187070 | - |
Tata Group
The Tata Group, India’s largest corporate group, with over 100 companies, wants to sell its UK steel business, which came as part of the $12.9 billion acquisition by Tata Steel of Corus in 2007. Tata Steel had invested over $ 2 billion as capital expenditure in its UK steel business and it has now written down the value of its investment of $2.9 billion, meaning the value of its UK steel business is almost zero. The company’s consolidated debt was $10.7 billion on September 30, 2015, with the total long-term debt of its Europe business at about $4.3 billion.
The others
Among other corporates,
• Naveen Jindal-led Jindal Steel and Power Limited has agreed to sell a 1,000 MW power plant to his elder brother Sajjan Jindal at an enterprise value of Rs 6,500 crore and is looking to sell other assets to reduce debts of Rs 46,000 crore.
• DLF Ltd, India’s most valuable property developer, has sought expressions of interest from several top global investors to sell a 40 per cent stake in its rental assets arm as it seeks to pare debt. The rental assets arm holds about 20 million sq.ft of leased-out office space and is valued at about $2 billion,
• India's largest sugar producer Shree Renuka Sugars Ltd has declared its Brazilian unit bankrupt and has filed for protection in the country. The company plans to fully exit from the National Commodity & Derivatives Exchange (NCDEX), as part of a strategy to sell all its non-core assets to reduce debt.
• The Sahara group’s sale list is long: 86 real estate assets, a 42 per cent stake in Formula 1 team Force India, four airplanes, and its hotels: the Sahara Hotel in Mumbai, Grosvenor House, London, the New York Plaza Hotel, and The Dream New York Hotel.
• Almost all of Vijay Mallya's assets are on sale by the banks.
Quenching the fire
Despite all the desperate deleveraging, the financial stress at these groups has intensified: all of them saw further increases in debt in FY15. These debts have grown seven-fold over the past eight years and account for 12 per cent of system loans, according to Credit Suisse
As groups like Jaypee and GMR cut back on capex and sold assets, their debt and EBITDA have deteriorated further, mainly because they sold their best assets, which were contributing to as much as 70 per cent of their EBITDA. For Jaypee, Lanco, Essar, and GMR, about half their debt has already been downgraded to Default by rating agencies. For GMR and Videocon, absolute debt has continued to rise despite asset sales. Lanco’s Udipi plant sales reduced debt levels by 15 per cent, but that project contributed to 69 per cent of its FY15 EBITDA. Videocon too hasn’t seen any reduction in debt levels.
Investment advisor SP Tulsian said that when you have gangrene in your body, you need to chop off that part to survive; “Similarly, Indian firms need to sell off assets to deleverage their balance sheets or they will die sooner or later. For, banks will take control of their assets and sell them to recover dues.”
However, Morgan Stanley, the global financial services firm believes that the worst of India's corporate debt crisis seems to be over as companies are reporting positive Free Cash Flow (FCF) for only the second time in two decades.
In its Asia Insight Report tilted “India – Macro meets Micro,” Morgan Stanley said that the distress in corporate India's balance sheet is unchanged for the past four years and lists out the following problems of corporate sector:
It’s a balance sheet recession
-Corporate debt to equity is at all-time high
-The debt service ratio is at a new low. The BSE 500 index companies have about 4 times their operating income to pay interest expenses compared to around 10 times in the boom years
-Interest to sales is approaching an all-time high, hurting net margins and impeding debt serviceability.
-Excess return on capital (ROCE minus the prime lending rate) is at all-time lows and in negative territory. This means that companies are earning less on their investment than the cost of their debt.
Tulsi Tanti’s Suzlon became the first casualty of the banks' recovery drive. In 2015, it was forced to sell its largest international subsidiary, Senvion, bought for €1.4 billion euro in 2007, for around €1.1 billion. The sale helped Suzlon cut down its debt of Rs 16,500 crore to Rs 10,500 crore, and reduce its interest liability from Rs 1,600 crore to Rs 800 crore a year. More companies from indebted sectors — power, infra, steel, realty for example — will be forced to emulate Suzlon and go for rapid asset sale in the hope of staying afloat until better times.
Thursday, 31 March 2016
The Tata's failure - Another nail for Indian corporate power?
Jayati Ghose in The Guardian
Thousands of steelworkers’ jobs are threatened as Indian company Tata threatens to walk away from its loss-making business in the UK. The move is causing shockwaves over the health of Britain’s manufacturing industry; but it is also a strong indicator of changing political and economic winds in India.
When Tata Steel acquired the steel giant Corus in 2007, it generated some cheers in India, but also raised eyebrows. The cheers were loudest among those who saw this as a macho declaration of Indian corporate arrival on the global scene. The purchase by Tata Steel of a company that was four times larger than itself made it at a stroke the fifth largest steel producer in the world and the first Fortune 500 multinational company from India.
But there were concerns over both the timing and the price at which the purchase was made. To fend off a Brazilian rival, Tata had to pay a 70% premium over the stock price. This was hefty for a company already in financial trouble with a large debt burden. And Tata paid only $4bn (£2.8bn) of the estimated $14bn final price out of its own funds – the rest was borrowed, mainly from Indian public sector banks.
Why were taxpayer-funded banks so willing to lend to a big conglomerate to buy up an overpriced European company, even as they denied loans to Indian farmers and small-scale producers? The sense of reversal of colonial roles might well have played a role. The deal was lauded by politicians as a sign that Indian industry had come of age as a global player, and so prudent considerations were simply cast aside.
Repayment of those loans was supposed to be made out of the profits of Tata Steel Europe. But those profits never came. At the time of acquisition Corus made an annual profit of about $800m, but since then the company has shown only losses – despite numerous rounds of restructuring, job cuts, asset sales and “modernisation”. In the past six months the company has shed around 3,500 jobs in the UK, but the financial indicators look worse than ever. This could result from incompetent management, but it also reflects worsening global conditions.
In Europe steel demand has been falling continuously over recent years, and there is fierce competition as Chinese exporters lower prices to cope with their own massive over-capacity. No one in the world really expects much dynamism from the European economy in the coming years.
By contrast, Indian steel demand is still increasing, if slowly, and the Indian operations still make profits. Tata Steel is now hugely weighed down by the UK business, which also accounts for around a third of its total debt. The charm of owning a big British company may no longer be enough to compensate. Instead, the urge is to cut losses and move out of an area that does not look likely to generate profits anytime soon.
Maybe the company also hopes the mere threat of exit will make the British government react by providing more subsidies – a technique that has worked in the past in India and elsewhere.
‘The Indian businessman Vijay Mallya fled to the UK and is now ensconced in his mansion in a London suburb.’ Photograph: Saurabh Das/AP
But this episode could also reflect collateral damage from another corporate scandal currently enthralling India. The flashy liquor baron Vijay Mallya, whose company Kingfisher Airlines (named after the beer his other company produces) collapsed, was also a major beneficiary of largesse from Indian banks. He now has unpaid debts of about £730m that he’s failed to pay for several years. Since he is also an elected member of the upper house of parliament, voted in by the ruling Bharatiya Janata party, this has caused a political outcry.
When the supreme court of India indicted him for abuse of law and ordered him to pay up or face the consequences, Mallya fled to the UK and is now ensconced in his mansion in a London suburb. He has offered to pay just over half of what he owes in six months’ time, an offer yet to be accepted. But his story must have raised concerns within Tata and among other large Indian businesses with huge debt – that even if the government spares them, the Indian courts may not.
So for now, Indian corporate chiefs planning to invest in the UK are more likely to be looking at real estate, rather than at multinational businesses.
Thousands of steelworkers’ jobs are threatened as Indian company Tata threatens to walk away from its loss-making business in the UK. The move is causing shockwaves over the health of Britain’s manufacturing industry; but it is also a strong indicator of changing political and economic winds in India.
When Tata Steel acquired the steel giant Corus in 2007, it generated some cheers in India, but also raised eyebrows. The cheers were loudest among those who saw this as a macho declaration of Indian corporate arrival on the global scene. The purchase by Tata Steel of a company that was four times larger than itself made it at a stroke the fifth largest steel producer in the world and the first Fortune 500 multinational company from India.
But there were concerns over both the timing and the price at which the purchase was made. To fend off a Brazilian rival, Tata had to pay a 70% premium over the stock price. This was hefty for a company already in financial trouble with a large debt burden. And Tata paid only $4bn (£2.8bn) of the estimated $14bn final price out of its own funds – the rest was borrowed, mainly from Indian public sector banks.
Why were taxpayer-funded banks so willing to lend to a big conglomerate to buy up an overpriced European company, even as they denied loans to Indian farmers and small-scale producers? The sense of reversal of colonial roles might well have played a role. The deal was lauded by politicians as a sign that Indian industry had come of age as a global player, and so prudent considerations were simply cast aside.
Repayment of those loans was supposed to be made out of the profits of Tata Steel Europe. But those profits never came. At the time of acquisition Corus made an annual profit of about $800m, but since then the company has shown only losses – despite numerous rounds of restructuring, job cuts, asset sales and “modernisation”. In the past six months the company has shed around 3,500 jobs in the UK, but the financial indicators look worse than ever. This could result from incompetent management, but it also reflects worsening global conditions.
In Europe steel demand has been falling continuously over recent years, and there is fierce competition as Chinese exporters lower prices to cope with their own massive over-capacity. No one in the world really expects much dynamism from the European economy in the coming years.
By contrast, Indian steel demand is still increasing, if slowly, and the Indian operations still make profits. Tata Steel is now hugely weighed down by the UK business, which also accounts for around a third of its total debt. The charm of owning a big British company may no longer be enough to compensate. Instead, the urge is to cut losses and move out of an area that does not look likely to generate profits anytime soon.
Maybe the company also hopes the mere threat of exit will make the British government react by providing more subsidies – a technique that has worked in the past in India and elsewhere.
‘The Indian businessman Vijay Mallya fled to the UK and is now ensconced in his mansion in a London suburb.’ Photograph: Saurabh Das/AP
But this episode could also reflect collateral damage from another corporate scandal currently enthralling India. The flashy liquor baron Vijay Mallya, whose company Kingfisher Airlines (named after the beer his other company produces) collapsed, was also a major beneficiary of largesse from Indian banks. He now has unpaid debts of about £730m that he’s failed to pay for several years. Since he is also an elected member of the upper house of parliament, voted in by the ruling Bharatiya Janata party, this has caused a political outcry.
When the supreme court of India indicted him for abuse of law and ordered him to pay up or face the consequences, Mallya fled to the UK and is now ensconced in his mansion in a London suburb. He has offered to pay just over half of what he owes in six months’ time, an offer yet to be accepted. But his story must have raised concerns within Tata and among other large Indian businesses with huge debt – that even if the government spares them, the Indian courts may not.
So for now, Indian corporate chiefs planning to invest in the UK are more likely to be looking at real estate, rather than at multinational businesses.
Sunday, 8 February 2015
Monday, 5 January 2015
How Jet Airways acquired monopoly power in privatised Indian civil aviation
Jitender Bhargava in The Business Standard
It is generally agreed that Indian aviation has failed to achieve the potential that the country offers. Whilst most have attributed the industry's lack of robustness to unclear government policies, high operational costs, and so on, few have ever cited the role of private Indian carriers in influencing policies.
Since such instances haven't been tabulated, one is oblivious to the scale of havoc caused. If quantified, the financial loss alone would run into crores of rupees besides the harm it has caused to the industry.
Perhaps the first instance of blatant interference in getting a policy tweaked was when the entry into the sector of the Tatas and Singapore Airlines was blocked in 1997. The revised policy ensured that no foreign airline could invest in an Indian carrier even while Kuwait Airways and Gulf Air owned a 20 per cent stake each in Jet Airways. The revised policy also gave Jet Airways time to buy back the stakes.
A couple of years later when Tata-Singapore Airlines submitted a proposal to acquire a 40 per cent stake in Air India, mischief was again in evidence. Singapore Airlines was forced to opt out of the race citing opposition. The intent was clear: an existing airline did not want a strong competitor in a rejuvenated Tata-Singapore Airlines-managed Air India. Imagine: if a Tata-Singapore Airlines-managed Air India had indeed become a reality, taxpayers wouldn't have had to fund the national carrier's bailout at a cost of Rs 30,000 crore. Air India, under the new management, would also have been an airline to contend with and not what it has become today.
In the previous decade, the government, with Praful Patel as the civil aviation minister, saw the introduction of an irrational 5/20 policy. This helped only one private airline at that time and barred others who did not possess five years of domestic flying experience and a fleet of 20 aircraft from taking to international skies. The current aviation minister, Ashok Gajapati Raju, is now seeking to do away with it. For that particular airline, this policy meant a lot. It could for some years reap the advantage of being India's only international airline besides Air India, whose ethnic traffic it could encroach upon to fill up its flights.
If crony capitalism has been beneficial for some, it has also unwittingly taken a toll of at least one airline. The 5/20 policy was a contributing factor in financially crippling Kingfisher. In his quest to fly internationally without waiting to complete the requisite five years, Vijay Mallya bought over Air Deccan, which was soon becoming eligible for international operations, at a price that defied logic. Kingfisher Airlines eventually perished under the weight of debt.
Air India was often "forced" to withdraw flights from certain sectors by citing "economical unviability". It wasn't a coincidence to see a private airline mount flights soon thereafter with market and passengers offered on a platter by the obliging national carrier.
No less intriguing has been studied silence of private airlines when seats were being recklessly doled out to foreign airlines though the policy was destined to harm them too, not just Air India. And today, we have the situation of Indian carriers failing to make a mark on the international routes with foreign airlines not only having been given a head-start but also a stranglehold on Indian market. The promoters of Indian carriers simply ignored the question of how their fund-starved carriers would compete on their home turf with mega global carriers bestowed with disproportionate quantum of seats and flights.
The way the Jet Airways-Etihad agreement was facilitated was yet another instance of external factors influencing a decision. The government granted 37,000 additional seats to Abu Dhabi, over and above the existing 13,000 seats, to help Etihad acquire a 24 per cent stake in Jet Airways.
Even though other Indian airlines and airports, notably private-run airports at Delhi and Mumbai, realised how the Jet-Etihad combination and the accompanying huge quantum of seats would take away their business and harm their long-term interests, they did nothing except voicing concerns to the civil aviation ministry.
As if no lessons were needed to be learnt for putting the sector on track, some carriers have, in fact, facilitated their political masters' wrongdoing. When Gulf countries sought additional seats, some Indian carriers at the slightest prodding gave it in writing that they needed additional seats. This helped build a case for doling out seats to foreign carriers while the records showed that the ministry was only acquiescing to the requests of Indian carriers. These carriers haven't used a single additional seat so far.
The mess that we witness today is thus not only a consequence of flawed government policies but also constant meddling and complicit silence of some Indian carriers. Do they deserve sympathy for the poor financial state of their airlines? Perhaps not, given the harm they have caused to the industry.
It is generally agreed that Indian aviation has failed to achieve the potential that the country offers. Whilst most have attributed the industry's lack of robustness to unclear government policies, high operational costs, and so on, few have ever cited the role of private Indian carriers in influencing policies.
Since such instances haven't been tabulated, one is oblivious to the scale of havoc caused. If quantified, the financial loss alone would run into crores of rupees besides the harm it has caused to the industry.
Perhaps the first instance of blatant interference in getting a policy tweaked was when the entry into the sector of the Tatas and Singapore Airlines was blocked in 1997. The revised policy ensured that no foreign airline could invest in an Indian carrier even while Kuwait Airways and Gulf Air owned a 20 per cent stake each in Jet Airways. The revised policy also gave Jet Airways time to buy back the stakes.
A couple of years later when Tata-Singapore Airlines submitted a proposal to acquire a 40 per cent stake in Air India, mischief was again in evidence. Singapore Airlines was forced to opt out of the race citing opposition. The intent was clear: an existing airline did not want a strong competitor in a rejuvenated Tata-Singapore Airlines-managed Air India. Imagine: if a Tata-Singapore Airlines-managed Air India had indeed become a reality, taxpayers wouldn't have had to fund the national carrier's bailout at a cost of Rs 30,000 crore. Air India, under the new management, would also have been an airline to contend with and not what it has become today.
In the previous decade, the government, with Praful Patel as the civil aviation minister, saw the introduction of an irrational 5/20 policy. This helped only one private airline at that time and barred others who did not possess five years of domestic flying experience and a fleet of 20 aircraft from taking to international skies. The current aviation minister, Ashok Gajapati Raju, is now seeking to do away with it. For that particular airline, this policy meant a lot. It could for some years reap the advantage of being India's only international airline besides Air India, whose ethnic traffic it could encroach upon to fill up its flights.
If crony capitalism has been beneficial for some, it has also unwittingly taken a toll of at least one airline. The 5/20 policy was a contributing factor in financially crippling Kingfisher. In his quest to fly internationally without waiting to complete the requisite five years, Vijay Mallya bought over Air Deccan, which was soon becoming eligible for international operations, at a price that defied logic. Kingfisher Airlines eventually perished under the weight of debt.
Air India was often "forced" to withdraw flights from certain sectors by citing "economical unviability". It wasn't a coincidence to see a private airline mount flights soon thereafter with market and passengers offered on a platter by the obliging national carrier.
No less intriguing has been studied silence of private airlines when seats were being recklessly doled out to foreign airlines though the policy was destined to harm them too, not just Air India. And today, we have the situation of Indian carriers failing to make a mark on the international routes with foreign airlines not only having been given a head-start but also a stranglehold on Indian market. The promoters of Indian carriers simply ignored the question of how their fund-starved carriers would compete on their home turf with mega global carriers bestowed with disproportionate quantum of seats and flights.
The way the Jet Airways-Etihad agreement was facilitated was yet another instance of external factors influencing a decision. The government granted 37,000 additional seats to Abu Dhabi, over and above the existing 13,000 seats, to help Etihad acquire a 24 per cent stake in Jet Airways.
Even though other Indian airlines and airports, notably private-run airports at Delhi and Mumbai, realised how the Jet-Etihad combination and the accompanying huge quantum of seats would take away their business and harm their long-term interests, they did nothing except voicing concerns to the civil aviation ministry.
As if no lessons were needed to be learnt for putting the sector on track, some carriers have, in fact, facilitated their political masters' wrongdoing. When Gulf countries sought additional seats, some Indian carriers at the slightest prodding gave it in writing that they needed additional seats. This helped build a case for doling out seats to foreign carriers while the records showed that the ministry was only acquiescing to the requests of Indian carriers. These carriers haven't used a single additional seat so far.
The mess that we witness today is thus not only a consequence of flawed government policies but also constant meddling and complicit silence of some Indian carriers. Do they deserve sympathy for the poor financial state of their airlines? Perhaps not, given the harm they have caused to the industry.
Monday, 7 April 2014
Arundhati Roy explains how corporations run India and why they want Narendra Modi as prime minister
Indian author Arundhati Roy wants the world to know that her country is under the control of its largest corporations.
"Wealth has been concentrated in fewer and fewer hands," Roy tells the Georgia Straight by phone from New York. "And these few corporations now run the country and, in some ways, run the political parties. They run the media."
The Delhi-based novelist and nonfiction writer argues that this is having devastating consequences for hundreds of millions of the poorest people in India, not to mention the middle class.
Roy spoke to the Straight in advance of a public lecture on Tuesday (April 1) at 8 p.m. at St. Andrew's–Wesley United Church at the corner of Burrard and Nelson streets. She says it will be her first visit to Vancouver.
In recent years, she has researched how the richest Indian corporations—such as Reliance, Tata, Essar, and Infosys—are employing similar tactics as those of the U.S.-based Rockefeller and Ford foundations.
She points out that the Rockefeller and Ford foundations have worked closely in the past with the State Department and Central Intelligence Agency to further U.S. government and corporate objectives.
Now, she maintains that Indian companies are distributing money through charitable foundations as a means of controlling the public agenda through what she calls "perception management".
She acknowledges that the Tata Group has been doing this for decades, but says that more recently, other large corporations have begun copying this approach.
Private money replaces public funding
According to her, the overall objective is to blunt criticism of neoliberal policies that promote inequality.
"Slowly, they decide the curriculum," Roy maintains. "They control the public imagination. As public money gets pulled out of health care and education and all of this, NGOs funded by these major financial corporations and other kinds of financial instruments move in, doing the work that missionaries used to do during colonialism—giving the impression of being charitable organizations, but actually preparing the world for the free markets of corporate capital."
She was awarded the Booker Prize in 1997 for The God of Small Things. Since then, she has gone on to become one of India's leading social critics, railing against mining and power projects that displace the poor.
She's also written about poverty-stricken villagers in the Naxalite movement who are taking up arms across several Indian states to defend their traditional way of life.
"I'm a great admirer of the wisdom and the courage that people in the resistance movement show," she says. "And they are where my own understanding comes from."
One of her greatest concerns is how foundation-funded NGOs "defuse people's movements and...vacuum political anger and send them down a blind alley".
"It's very important to keep the oppressed divided," she says. "That's the whole colonial game, and it's very easy in India because of the diversity."
Roy writes a book on capitalism
In 2010, there was an attempt to lay a charge of sedition against her after she suggested that Kashmir is not integral to India's existence. This northern state has been at the centre of a long-running territorial dispute between India and Pakistan.
"There's supposed to be some police inquiry, which hasn't really happened," Roy tells the Straight. "That's how it is in India. They...hope that the idea of it hanging over your head is going to work its magic, and you're going to be more cautious."
Clearly, it's had little effect in silencing her. In her upcoming new book Capitalism: A Ghost Story, Roy explores how the 100 richest people in India ended up controlling a quarter of the country's gross-domestic product.
The book is inspired by a lengthy 2012 article with the same title, which appeared in India's Outlook magazine.
In the essay, she wrote that the "ghosts" are the 250,000 debt-ridden farmers who've committed suicide, as well as "800 million who have been impoverished and dispossessed to make way for us". Many live on less than 40 Canadian cents per day.
"In India, the 300 million of us who belong to the post-IMF 'reforms' middle class—the market—live side by side with spirits of the nether world, the poltergeists of dead rivers, dry wells, bald mountains and denuded forests," Roy wrote.
The essay examined how foundations rein in Indian feminist organizations, nourish right-wing think tanks, and co-opt scholars from the community of Dalits, often referred to in the West as the "untouchables".
For example, she pointed out that the Reliance Group's Observer Research Foundation has a stated goal of achieving consensus in favour of economic reforms.
Roy noted that the ORF promotes "strategies to counter nuclear, biological and chemical threats". She also revealed that the ORF's partners include weapons makers Raytheon and Lockheed Martin.
Anna Hazare called a corporate mascot
In her interview with the Straight, Roy claims that the high-profile India Against Corruption campaign is another example of corporate meddling.
According to Roy, the movement's leader, Anna Hazare, serves as a front for international capital to gain greater access to India's resources by clearing away any local obstacles.
With his white cap and traditional white Indian attire, Hazare has received global acclaim by acting as a modern-day Mahatma Gandhi, but Roy characterizes both of them as "deeply disturbing". She also describes Hazare as a "sort of mascot" to his corporate backers.
In her view, "transparency" and "rule of law" are code words for allowing corporations to supplant "local crony capital". This can be accomplished by passing laws that advance corporate interests.
She says it's not surprising that the most influential Indian capitalists would want to shift public attention to political corruption just as average Indians were beginning to panic over the slowing Indian economy. In fact, Roy adds, this panic turned into rage as the middle class began to realize that "galloping economic growth has frozen".
"For the first time, the middle classes were looking at corporations and realizing that they were a source of incredible corruption, whereas earlier, there was this adoration of them," she says. "Just then, the India Against Corruption movement started. And the spotlight turned right back onto the favourite punching bag—the politicians—and the corporations and the corporate media and everyone else jumped onto this, and gave them 24-hour coverage."
Her essay in Outlook pointed out that Hazare's high-profile allies, Arvind Kerjiwal and Kiran Bedi, both operate NGOs funded by U.S. foundations.
"Unlike the Occupy Wall Street movement in the US, the Hazare movement did not breathe a word against privatisation, corporate power or economic 'reforms'," she wrote in Outlook.
Narendra Modi seen as right-wing saviour
Meanwhile, Roy tells the Straight that corporate India is backing Narendra Modi as the country's next prime minister because the ruling Congress party hasn't been sufficiently ruthless against the growing resistance movement.
"I think the coming elections are all about who is going to crank up the military assault on troublesome people," she predicts.
In several states, armed rebels have prevented massive mining and infrastructure projects that would have displaced massive numbers of people.
Many of these industrial developments were the subject of memoranda of understanding signed in 2004.
Modi, head of the Hindu nationalist BJP coalition, became infamous in 2002 when Muslims were massacred in the Indian state of Gujarat, where he was the chief minister. The official death tollexceeded 1,000, though some say the figures are higher.
Police reportedly stood by as Hindu mobs went on a killing spree. Many years later, a senior police officer alleged that Modi deliberately allowed the slaughter, though Modi has repeatedly denied this.
The atrocities were so appalling that the American government refused to grant Modi a visitor's visa to travel to the United States.
But now, he's a political darling to many in the Indian elite, according to Roy. A Wall Street Journal report recently noted that the United States is prepared to give Modi a visa if he becomes prime minister.
"The corporations are all backing Modi because they think that [Prime Minister] Manmohan [Singh] and the Congress government hasn't shown the nerve it requires to actually send in the army into places like Chhattisgarh and Orissa," she says.
She also labels Modi as a politician who's capable of "mutating", depending on the circumstances.
"From being this openly sort of communal hatred-spewing saccharine person, he then put on the suit of a corporate man, and, you know, is now trying to play the role of the statesmen, which he's not managing to do really," Roy says.
Roy sees parallels between Congress and BJP
India's national politics are dominated by two parties, the Congress and the BJP.
The Congress maintains a more secular stance and is often favoured by those who want more accommodation for minorities, be they Muslim, Sikh, or Christian. In American terms, the Congress is the equivalent of the Democratic Party.
The BJP is actually a coalition of right-wing parties and more forcefully advances the notion that India is a Hindu nation. It often calls for a harder line against Pakistan. In this regard, the BJP could be seen as the Republicans of India.
But just as left-wing U.S. critics such as Ralph Nader and Noam Chomsky see little difference between the Democrats and Republicans in office, Roy says there is not a great deal distinguishing the Congress from the BJP.
"I've said quite often, the Congress has done by night what the BJP does by day," she declares. "There isn't any real difference in their economic policy."
Whereas senior BJP leaders encouraged wholesale mob violence against Muslims in Gujarat, she notes that Congress leaders played a similar role in attacks on Sikhs in Delhi following the 1984 assassination of then–prime minister Indira Gandhi.
"It was genocidal violence and even today, nobody has been punished," Roy says.
As a result, each party can accuse the other of fomenting communal violence.
In the meantime, there are no serious efforts at reconciliation for the victims.
"The guilty should be punished," she adds. "Everyone knows who they are, but that will not happen. That is the thing about India. You may go to prison for assaulting a woman in a lift or killing one person, but if you are part of a massacre, then the chances of your not being punished are very high."
However, she acknowledges that there is "some difference" in the two major parties' stated idea of India.
The BJP, for example, is "quite open about its belief in the Hindu India...where everybody else lives as, you know, second-class citizens".
"Hindu is also a very big and baggy word," she says to clarify her remark. "We're really talking about an upper-caste Hindu nation. And the Congress states that it has a secular vision, but in the actual playing out of how democracy works, all of them are involved with creating vote banks, setting community against community. Obviously, the BJP is more vicious at that game."
Inequality linked to caste system
The Straight asks why internationally renowned authors such as Salman Rushdie and Vikram Seth or major Indian film stars like Shahrukh Khan or the Bachchan family don't speak forcefully against the level of inequality in India.
"Well, I think we're a country whose elite is capable of an immense amount of self-deception and an immense amount of self-regard," she replies.
Roy maintains that Hinduism's caste system has ingrained the Indian elite to accept the idea of inequality "as some kind of divinely sanctioned thing".
According to her, the rich believe "that people who are from the lower classes don't deserve what those from the upper classes deserve".
Her comments on corporate power echo some of the ideas of Canadian activist and author Naomi Klein.
"Of course, I know Naomi very well," Roy reveals. "I think she's such a fine thinker and of course, she's influenced me."
Roy also expresses admiration for the work of Indian journalist Palagummi Sainath, author of the 1992 classic Everybody Loves a Good Drought: Stories from India's Poorest Districts.
However, she suggests that the concentration of media ownership in India makes it very difficult for most reporters to reveal the extent of corporate control over society.
"In India, if you're a really good journalist, your life is in jeopardy because there is no place for you in a media that's structured like that," Roy says.
On occasions, mobs have shown up outside her home after she's made controversial
statements in the media.
She says that in those instances, they seemed more interested in performing for the television cameras than in attacking her.
However, she emphasizes that other human-rights activists in India have had their offices trashed by demonstrators, and some have been beaten up or killed for speaking out against injustice.
Roy adds that thousands of political prisoners are locked up in Indian jails for sedition or for violating the Unlawful Activities Prevention Act.
This is one reason why she argues that it's a fallacy to believe that because India holds regular elections, it's a democratic country.
"There isn't a single institution anymore which an ordinary person can approach for justice: not the judiciary, not the local political representative," Roy maintains. "All the institutions have been hollowed out and just the shell has been put back. So democracy and these festivals of elections is when everyone can let off steam and feel that they have some say over their lives."
In the end, she says it's the corporations that fund major parties, which end up doing their bidding.
"We are really owned and run by a few corporations, who can shut India down when they want," Roy says.
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