4,300 Number of companies taken to NCLT for loan default
In the second week of March, Venugopal Dhoot, 69, who built India’s first homegrown consumer durables company, Videocon Industries Ltd (VIL), looked distraught while walking out of a PMLA (Prevention of Money Laundering Act) court in Mumbai. The court granted him bail but asked him to surrender his passport.
Dhoot, whose personal wealth was $1 billion-plus in 2015, has lost all major businesses — consumer durables, telecom, oil exploration — to insolvency. In August 2019, the National Company Law Tribunal (NCLT) consolidated resolution processes for all 13 group companies, which had total admitted claims of ₹64,838 crore. In October 2020, the Dhoot family offered lenders ₹30,000 crore to withdraw the insolvency proceedings. But the creditors decided to sell the assets to a Vedanta group company, Twin Star Technologies, for ₹2,962 crore, taking a haircut of over 95 per cent. However, the National Company Law Appellate Tribunal (NCLAT) stayed the bid.
Dhoot is among the hundreds of Indian businessmen who have lost their companies after the introduction of the Insolvency and Bankruptcy Code (IBC) in 2016. The code replaced complex corporate insolvency laws and mandated strict resolution timelines. Lenders have so far taken over 4,300 companies to NCLT for loan default.
While high-cost expansion funded by debt has been the biggest reason for most of these corporate failures, another factor has been diversification into unrelated areas. A study of the reasons for their collapse offers lessons in corporate governance, the biggest being that adding capacity at the right time, ability to sense market dynamics and understanding technology are important for running a successful business. And, while debt is important for growth, it has to be watched carefully lest it become unsustainable.
Take Brij Bhushan Singal’s sons, Sanjay and Neeraj, who ran Bhushan Steel (BSL) and Bhushan Power and Steel (BPSL) separately. Both have lost around ₹ 55,000 crore wealth. The two companies were part of the Reserve Bank of India’s (RBI’s) first list of 12 big defaulters that were sent to IBC after their debt became unmanageable. Tata Steel acquired BSL for ₹35,200 crore in 2018 while JSW Steel took over BPSL for ₹19,350 crore in March 2021. The siblings are being investigated for money laundering and fraud too.
Anil Ambani, the world’s sixth-richest person in 2008 with wealth of $42 billion, pleaded bankruptcy before a London court in September 2020. He lost the flagship Reliance Communications Ltd (RCom) and Reliance Naval and Engineering. Four other companies — Reliance Infrastructure, Reliance Power, Reliance Capital and Reliance Home Finance — had defaulted on loans before the Covid-19 outbreak but got relief for some time as the pandemic forced the government to suspend IBC until March 2021.
₹1.61 LAKH CRORE Debt of Reliance Group companies in 2018
BT takes a close look at the dozen biggest business families that have lost most of their wealth/businesses or flagship companies since the IBC was implemented.
Reliance Group: Heavy Damage
Anil Ambani, the younger son of Dhirubhai Ambani, was known for living a luxurious life — appearing with celebrities, hobnobbing with top politicians and travelling on private jets. In 2007/08, when elder brother Mukesh Ambani gifted wife Nita a corporate jet worth ₹250 crore, Anil bought a super luxury yacht for wife Tina for ₹400 crore.
That was then. In September 2020, appearing virtually before the High Court in London in a debt repayment case, he declared he owned no significant assets and his expenses were borne by wife Tina and his family. When the court asked him to declare personal assets and credit card details, he said he had sold all his jewellery to pay legal fees. He tried to convince the court that he leads a simple life, drives one car and owes money to his family. Earlier, in May 2020, the court had ruled in favour of the appellants — three Chinese banks which had lent to RCom — but Ambani failed to pay the $716 million that RCom had reportedly taken on the basis of his personal guarantee. The banks are trying to take possession of Ambani’s overseas assets.
That is not all. State Bank of India (SBI) has also initiated personal bankruptcy proceedings against Anil Ambani. In August 2020, the Delhi High Court stayed the resolution process initiated in the NCLT. The Supreme Court later refused to vacate the stay. Ambani requested the Delhi High Court to include Chinese banks in his legal challenge to SBI’s proceedings in India.
The seeds of the crisis lie in the group’s debt-raising spree to build capital intensive projects in power, defence and infrastructure sectors. The group debt more than trebled from ₹41,892 crore in March 2008 to ₹1.61 lakh crore in March 2018. The once flagship telecom business, RCom, also heavily indebted, faced a major disruption when Mukesh Ambani’s Reliance Industries launched free voice and low-cost data services under the Jio brand in September 2016. RCom tried to sell some assets but defaulted on debt in 2019. It was taken to IBC. The shares, which had peaked at around ₹800 in March 2006, fell below ₹1 in 2019. Reliance Naval and Engineering also failed to service loans and filed for bankruptcy. Reliance Home Finance and Reliance Commercial Finance, subsidiaries of Reliance Capital, too, defaulted on loans. Banks started the debt resolution exercise for both companies as per the Reserve Bank of India’s June 7, 2019, circular on Prudential Framework for Resolution of Stressed Assets Directions 2019. These companies will get new owners soon. Cash-strapped Reliance Capital defaulted on term loans of HDFC Ltd and Axis Bank on October 31, 2020. Reliance Capital’s total debt was ₹26,906 crore in March 2020.
The group has two more businesses, Reliance Power and Reliance Infrastructure. In mid-2020, Reliance Infrastructure declared a financial debt of ₹17,065 crore. Reliance Power defaulted on repayments to Axis Bank, Yes Bank and Lakshmi Vilas Bank due on January 31, 2020. Its total borrowings stood at ₹28,803 crore as on March 31, 2020.
In October 2020, Yes Bank initiated steps to attach Reliance Centre, the Mumbai headquarters of the group. The group is among the biggest borrowers of Yes Bank with a loan of ₹12,000 crore. The Enforcement Directorate (ED) had summoned Ambani in connection with the probe against Yes Bank founder Rana Kapoor in March 2020.
Promoter/group: Anil Ambani/Reliance Group
Companies: Reliance Infrastructure, Reliance Power, Reliance Capital
Lost control of: Reliance Communications, Reliance Naval and Engineering, Reliance Home Finance, Reliance Commercial Finance
Peak market valuation: ₹2.36 lakh crore in FY08-end
Current market valuation: ₹6,238 crore (as on July 15)
Current debt: ₹72,774 crore (March 2020)
Reason for insolvency: Unrealistic expansion, miscalculation of market dynamics
Insolvency claims admitted: ₹85,600 crore for RCom and its subsidiaries
Status: Resolution inconclusive due to spectrum dues
Ambani is making a last-ditch effort to be in the reckoning with the defence vertical. The ventures with Dassault Aviation and Thales of France are operational at Mihan, Maharashtra. The plan includes making components for Falcon 2000 jets and radars. A defence subsidiary, Reliance Armament, has submitted request for proposals for manufacturing light machine guns, sniper rifles and other small arms worth over ₹6,000 crore. However, it has made little progress in showcasing these weapons and sending them for army trials, say sources.
The group did not respond to emails from BT.
Jaypee Group: Crisis Build-Up
The Jaypee Group, led by the 90-year-old founder, Jaiprakash Gaur, is struggling for survival. The Gaurs rose to fame when they constructed two huge dams, Sardar Sarovar and Tehri, in the 1980s. The group grew phenomenally between 2000 and 2010 riding on the realty and infrastructure boom. It invested ₹60,000 crore in real estate, power and cement. The combined revenues of three companies — Jaiprakash Associates (JAL), Jaiprakash Power Ventures (JPVL) and Jaypee Infratech — jumped 476 per cent to ₹27,925 crore in the seven years until FY2015.
The group has been in trouble for the last five-six years because of the heavy liabilities on its books. The major casualty in the group was Jaypee Infratech, which defaulted loans and filed for bankruptcy. Group revenues have more than halved to ₹13,560 crore between FY15 and FY20. The aggregate market value of the Jaypee Group companies, at around ₹7,030 crore (as on July 15), is one-seventh its March 2010 valuation of ₹45,951 crore, thanks to the debt, which touched ₹1.15 lakh crore in FY15 as the Gaurs bet on risky projects in roads, power, cement, power, real estate and hotels. Jaypee built India’s first F1 track, Buddh International Circuit, in 2011, spending ₹2,000 crore. But the venue was not part of the global F1 calendar in 2014. Jaypee stopped paying lease dues. The Yamuna Expressway Industrial Development Authority cancelled the lease in 2019.
The troubles came to a boil when the RBI put the flagship Jaypee Infratech in its first list of defaulters. Its Yamuna Expressway project between Noida and Agra with a township area of 25 million square metres was hit by a slowdown in the real estate market. Construction of apartments along the Noida-Greater Noida Expressway was halted in 2013 after the National Green Tribunal stayed construction within 10 kilometres of the Okhla Bird Sanctuary. The total admitted claims of the banks were ₹9,782 crore. Mumbai-based Suraksha Realty is set to bag Jaypee Infratech as part of the IBC resolution process.
Promoter/group: Shashi (left) and Ravi Ruia/Essar
Companies: Essar Oil UK, Essar Power, Essar Ports, Essar Projects, Essar Shipping, mining in the US
Lost control of: Essar Steel, Algoma in the US, EPC Constructions India and Essar Power Jharkhand
Peak revenue: $27 billion in 2014/15
Current revenue: $14 billion
Reason for insolvency: Delay in project execution, poor cash flow
Insolvency claims admitted: ₹54,565 crore for Essar Steel
Status: ArcelorMittal Nippon Steel acquired Essar Steel for ₹42,000 crore
The cement business also saw a dip in profits but the company kept adding capacity. The hotel business came under pressure due to declining occupancy. Electricity prices fell after the country added additional capacity, affecting JPVL. The Gaur family is now left with two struggling businesses — JAL and JPVL. JAL made a consolidated loss of ₹667 crore in FY21 while JPVL posted a profit of ₹281 crore. There is hope that the Gaurs can turn around these companies. An ICICI Bank-led consortium, which had tried to take JAL to bankruptcy court in 2018, is working out a resolution plan outside the bankruptcy process. They propose to monetise the cement business and some land, according to sources. Reports say JAL will restart a few real estate projects, including the luxury project, Knight Court, in Noida.
The group has also been affected by a rift among the brothers. In July 2020, second son Sunny Gaur quit as director of JAL. Earlier, just before Jaypee Infratech’s bankruptcy filing, the other son, Samir, left the family business to pursue personal business interests. Eldest son Manoj has been calling the shots in the engineering and construction giant for years.
Emails to Manoj Gaur and group executives did not elicit any response.
Essar: The Debt Binge
In 2012, Shashi Ruia’s son, Prashant, took charge of three companies, Essar Oil, Essar Steel and Essar Power, with big plans to build assets. But the group ended up with a massive debt overhang. Essar Steel was in the RBI's first list of 12 big loan defaulters.
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