BILLIONS TO BUST
Lessons from the failure of some from Indian's biggest business names.
AS THE SALE OF ESSAR STEEL under the Insolvency and Bankruptcy Code, or IBC, moves a step closer, its past owner, the Ruia family, is coming to terms with the fact that re-building its business empire to the scale it enjoyed just five years ago might take decades. At its peak, the group, promoted by brothers Shashi Ruia and Ravi Ruia, and at present run by Shashi’s son Prashant Ruia, had interests in half-a-dozen sectors — oil refining, power, steel, ports, telecom and BPO, in India and abroad. In 2014/15, it was among the top five business houses in India with revenues of `1.6 lakh crore. It had also run up a debt of `1.3 lakh crore.
After the IBC process is over, the Ruias would have lost not only their crown jewel, Essar Steel (`20,000 crore revenue in the last financial year), but also a number of power and port assets that lenders are referring to the National Companies Law Tribunal or NCLT. They will still own some companies but the group will be less than one-third the size it was five years ago.
The Ruias did everything possible to hold on to Essar Steel. In 2016, they sold their Vadinar oil refinery, a captive power plant and a port for $12.9 billion to pay off some group-level debt. They even tried to bid for Essar Steel when it was offered for sale under the IBC. But the government changed the IBC rules and barred promoters from bidding unless they paid banks the entire money owed by them.
The only consolation is that even after losing Essar Steel, the Ruias would control several companies with combined revenues of over $7 billion, thanks to the Stanlow refinery in the UK. Several others who had built their business empires using cheap debt during the go-go years
of the economy in the last decade would consider them lucky. They, after all, are losing almost everything they ran.
The warring Singal brothers – Sanjay and his younger sibling Neeraj – in race to build bigger and more modern steel factories have lost their companies. Neeraj’s Bhushan Steel has been snapped up by Tata Steel, while JSW Steel and Tata Steel are fighting for Sanjay’s Bhushan Power and Steel. The Singals will have no significant business left after this.
The Gaur family of the Jaypee group will also lose most of their assets. They started off as government contractors for big dams such as Sardar Sarovar and Tehri. But after the IBC process is over, they would have lost almost all their businesses — cement, power, real estate and infrastructure. The most profitable cement plants have already been sold to clear some debt. The real estate business is facing bankruptcy, and after its sale/liquidation, the Gaurs will probably have a handful of relatively smaller assets, if anything.
They have company in Sandip Jajodia (the brother-inlaw of JSW Group’s Sajjan Jindal), who built the Monnet Ispat group; Arvind Dham, who created an auto ancillary empire under Amtek Auto; and Rishi Agarwal of ABG Shipyards. Then there are Valecha, Thakur and Mirchandani families, all partners in Jyoti Structures, which is facing liquidation.
These companies are among the 12 big loan default cases which lenders had taken to the NCLT for resolution in the first round. In the next rounds, many other big names will also have to get used to a far smaller presence. The Videocon empire, for instance, will shrink to a handful of small businesses (including hydrocarbon assets abroad), as would several others, such as Ruchi Soya, built by the Indore-based Shahra family.
These businessmen were ambitious. They used cheap debt to expand to unsustainable levels. And most made miscalculations in projections for the future. Their rise, and the subsequent fall, is a tale of how ambition is all it takes to build a fortune, and destroy it too. And though some may bounce back, most would never find a place on the Indian corporate world’s high table.
The Ruias — Rise and Fall
For decades, it seemed the Ruias had been blessed with the nine lives of a cat as they survived one business mishap after another. Brothers Shashi and Ravi had started out as infrastructure contractors in 1969, building ports and pipelines, before getting into the core businesses themselves — steel, telecom, ports, refinery and power. But their problem has been, and still remains, over-dependence on debt. Essar Steel’s first loan default, for example, was in 2000. That was not the only one. It had to file for bankruptcy protection for two separate group companies in the US, defaulted on power and refinery loans, among others, and had to seek debt restructuring several times. Each time, they managed