Bamboozling banks with pompous promises and getting massive loans far beyond eligibility have been nothing new to Vijay Mallya. IE looked closely at Vijay Mallya’s actions two decades ago, in the mid-Nineties.
The booze business was then booming. Southern states were massively expanding liquor consumption with the liberal support of the state governments. This boom generated huge cash surpluses.
Vijay Mallya was on an acquisition spree. In quick succession he acquired a large number of companies using his clout with financial institutions. These included the century-old Best & Crompton Engineering Ltd, Mangalore Chemicals & Fertilizers, Garware Paints, Western India Enterprises...
These were dream acquisitions. With bad management he turned these dreams into nightmares. He tried to get over the financial crunch by stripping the assets of the acquired firms to the bone, defaulted on payments to the consortium of banks demanding and getting away liberal write-offs of interest dues and funding of interest, and re-scheduling debt. Even on the promised payments on debentures and bonds raised, on ESI, PF and other dues to employees, he merrily defaulted and got away with impunity!
IE reported extensively on Best & Crompton in the 1990s. In the cover story captioned Best & Crompton – the strip-tease continues… we wrote: “like a spoilt child, there is a tendency on the part of Vijay Mallya to blame the problems of Best & Crompton on the financial institutions and banks, vendors, buyers and employees. He refers frequently to the non-availability of support facilities. Why the hell should they support non-performance?”
I re-produce excerpts on this blunt appraisal of the rank incompetence, unconcern and criminal nonchalance with which highly reputed group of companies, built assiduously by the brilliant business leader M K Kumar, was turned sick and had to be sold to a NRI businessman in Indonesia largely on the strength of its expansive land assets.
A babe in the woods...
Vijay Mallya is known for his bluff and bluster. But even for his standards, his nonchalance and audacity are intriguing. When questioned how the profitable company of Best & Crompton (B&C) turned sick, he expansively explained: “when I took over I had no idea of the company’s liabilities as no due diligence audit was made. The company had a Rs 30 crore hidden liability which was shown as assets. Moreover, the company included revenue pertaining to next financial year to show profits in the current year.” – IE 1 December 1995.
So it turns out that the great corporate raider who hogged headlines in the eighties for his predatory exploits, was after all a babe in the woods. How he used all his charms with the government and the financial institutions to beat several other bidders, including the Murugappa group, to acquire control over what was considered for over a decade, one of the strongest, well-diversified and prestigious contracting and engineering companies in the country! – IE January 1996
Pray why should they support non-performance?
Mallya did make a lot of promise on developing B&C into an engineering giant. It came in handy for the company raising Rs 32 crore through a zero bond issue. Surprisingly, despite the accretion of this handsome amount and the resources he mobilised through liberal disinvestments and stripping of assets, B&C continued to suffer serious cash crunches. In his dirge of a chairman’s statement, Mallya said: “we can no longer afford the luxury of decision-making based on sentimental attachments and soft spots… I have decided to address the various problems fairly and squarely irrespective of the consequences that may occur in the short term… A rather massive voluntary retirement scheme (VRS), the re-orientation of our manufacturing and contracting activities, the closure of plants, the infusion of new technology and human resources as well as the aggressive exploitation of overseas market opportunities were proposed.” (from the Chairman’s statement in B&C’s annual report 1992-93).
The lament continued through the next year: “the company had no other alternative but to continue to default on dues including quarterly interests. The company had also to delay meeting the matured Fixed Deposits and Debenture redemption/interest which had fallen due… Manufacturing operations were seriously affected due to low inventories, non-availability of credit facilities from suppliers and an inordinate delay in putting the voluntary retirement scheme through.” (from the report of the directors for 1993-94). - SV