IN RECENT TIMES, large conglomerates like Essar and Reliance, are selling off the family silver to reduce their humungous debts. Ruias’ Essar group plans to sell its flagship asset, Essar Oil, to Russia’s Rosneft for Rs. 73,000 crore. Reliance Communications has put on sale 44,000 telecom towers, optic fibre and related infrastructure totalling Rs 30,000 crore. Reliance Telecom’s merger with Aircel has followed this.
Pranab Mukherjee and P Chidambaram as finance ministers should take the rap for pushing banks to lend massively for huge infrastructure projects. At the fag end of the UPA-2 regime, the man in white-and-white often lamented that projects worth Rs. 700,000 crore remained non-starters, conveniently forgetting that this was the outcome of incredibly poor feasibility studies, tardy clearances and pathetic monitoring.
Remember the UPA-1 government coming out with a grandiose scheme of setting up nine ultra-mega power projects each with 4000 MW capacity? Ten years later, just one of these projects, Tata Power, was commissioned. In that process, the original commitment of supplying power at the ridiculously low rate of Rs 1.05 - Rs.1.40 per unit for twenty years was thrown to winds.
This mindless magnanimity saddled banks with massive non-performing assets (NPAs). Large industrial groups breezily borrowed far beyond viable gearing. With projects not getting cleared, the quantum of loans ballooned and defaults of repayments as per agreed schedules multiplied.
It should go to the credit of the rockstar Governor Raghuram Rajan, who put his foot firmly down, forcing banks to provide for the huge NPAs and directing them to recover the mounting debts. For the first time in several years, banks had to make adequate, realistic provisions. The consequential pressure exerted by banks has led to several large industrial groups forced to sell off their family silver and clean up their balance sheets.
Ruias’ rise was indeed meteoric. From a small town civil contractor helping the Chennai Port build its breakwaters in Chennai and doing other contracting and erection jobs, they expanded to supply victuals for oil platforms at the Bombay High. Shashi and Ravi Ruia foresaw the huge potential in the petroleum business, acquired technology for laying submarine pipelines and were offering a vast variety of services. Essar quickly expanded to steel, shipping, infrastructure...
Inconsistent, uncertain policies on oil
Essar Oil set up a large oil refinery at Vadinar. Alongside, the company developed the port and expanded into a 20-million tonne refinery. Impressed by the plans of the NDA I government to open up petroleum trading, Essar also set up hundreds of retail outlets across the country. Inconsistent and uncertain policies on oil by the federal government landed Essar into difficulties. The hefty subsidies extended to kerosene, diesel and petrol were limited to public sector oil companies; this resulted in Essar slowing down the retail outlet business. The mounting debts of Essar Oil and Essar Steel that exceeded Rs. 100,000 crore, forced them to sell off the oil business.
Not just Essar. We are now witnessing the sale of large airports, ports, steel plants, refineries, power plants, fertiliser plants and cement units. The Hindu reported bank debts of ten large business houses at Rs. 500,000 crore and stated that they will be forced to sell assets worth Rs. 200,000 crore. These include ADAG, Essar, Adani, JayPee, GMR, Lanco, Videocon and GVK. Even the largest of the corporates like the Tatas and Mukesh Ambani’s Reliance are no exceptions. The Tatas announced selling their prized overseas acquisition of Corus Steel and recently sold their fertilizer plant at Babrala. That has brought into the open the simmering differences between Ratan Tata and Cyrus Mistry, two towering personalities belonging to two different generations, married to contrasting work ethos. Ratan Tata heads the Tata Trusts that is estimated to own over 60 per cent of the shares of Tata companies and Mistry was heading Tata Sons, the holding company of the large conglomerate.
There is also the impact of global and domestic slowdown: from 2004 to 2010 the Indian economy grew at a frenetic pace. In that period revenues and profits zoomed and Indian companies took bold to acquire across the globe assets of large sizes apart from investing heavily on domestic projects. The years since Mistry took over in late 2012 have suffered from global melt down and a steep slowdown of the Indian economy.
A personality clash in the uppermost echelons of power in India’s most trusted and respected group holds no good to anyone. And if this had anything even remotely to do with the disinvestment plan, it is a tragedy of epic proportions.