What happens if the factory owners simply vanished, leaving all the debtors in distress and the staff in a mess? The 26th part of a series describing the unknown triumphs and travails of doing international business
Due to a great money control by banks, there was spate of rumours in the market about merchants having problems in settling their dues with the bank. Some small shopkeepers had simply over extended themselves and skipped the country. And the bigger merchants were delaying settlement and asking for extensions for payment, or seeking new credit facilities in other banks. The money market was tight.
In the case of Free Zone, thanks to the very methodical work done by their financial management team, every garment manufacturer had given bank guarantee for taking care of such eventualities pertaining to the large number of workforce involved. This covered their major expense of repatriation to the home country of origin, and of course, rest of the financial burden was on the owners themselves.
But what happens, if they themselves simply vanished, leaving all the debtors in distress and the staff in a mess?
It was about 7.30 in the morning, when my wife received a call from Subha, who wanted to speak to me on an emergency, and who, at the very outset, had clarified to her that she was calling from another factory. I was actually getting ready as my morning schedule would have covered a visit to textile market to get some urgent materials before reaching the plant.
For obvious reasons, I do not want to name the company; but from a brief talk, it transpired that her ‘boss’ was not coming to the factory for the last few days, and she got the news from the cook that he had simply left the country, with all his baggage! The staff had worked for two days and after he failed to turn up, was actually marching from their plant to the Free Zone office to lodge their complaint. After assuring her that I would come to their assistance, I changed my work schedule and rushed to the Free Zone.
By this time, the Free Zone officials also received the intimation and managed to stop the procession, except for the main speakers, simply because they spoke English. I reached just in time.
I began the discussion, not as a Finetex chief, but as secretary of JAGTA, as I also did not want the news to spread outside and my prime concern was the welfare of the staff, not the issue of whereabouts of the owner/owner’s legal representative (who managed the factory). In less than one hour, it was confirmed that he had left the country, and there was no one to talk to. The bank concerned was reluctant to comment on the situation; all that they could say at that time was that they “were investigating the matter further”.
Abu Baker was the person who was catering to their needs in the camp, was also handling our staff. I personally got in touch with him and assured him that until the matter was resolved, he should extend all the courtesies to the staff, and ensure that food was supplied, for which I stood personal guarantee. I spoke to them, and assured them not to get panicky, and I guaranteed their jobs, excepting for those who wished to or decided to return back to Sri Lanka!
As secretary of JAGTA, I began the discussions with the Personnel department of the Free Zone; I had full cooperation from Mohammed (I think he was No: 3 in the zone at that time) and Sharif from Administration.
We listed out the staff available, and I arranged for two or three lots to be sent to Finetex for immediate placement by interview by Perera. I had spoken to Sheru in Palmon so that he could take some and by the evening almost all the staff of the factory who wanted to stay back and work was ‘absorbed’ by JAGTA members. If anyone got a job outside the Free Zone, special arrangements were at the immigration office for such a ‘transfer’, which would not have been possible under normal circumstances!
Those who decided to return back home, were repatriated within the next few days by the Free Zone. This was the only black mark we had in the Free Zone, all due to the fault of the owners.
Outside the Free Zone, other Emirates had come out with similar proposals; Sharjah was the first; industrial licenses were being issued by Ajman, RAK and UAQ, besides Abu Dhabi. There was a spate of activity everywhere, and everyone had plenty of orders. We had agents from Hong Kong flying down practically every day with new samples, and ready supply of raw materials/accessories, and wanted the factories to take simple production contract jobs, without involving capital expenditure to import these.
It was at this time, Sundaram got in touch with me, after he had heard from my wife that I was associated with the garment industry, since he wanted to study the prospects himself. After a brief meeting, I went to his office, from where he took me to an old unused multi-storied house (4-5 floors) that was available, which could be converted into a factory.
I felt this was possible; and we sat down to prepare a plan of conversion. In the beginning he was sceptical, but went along, and as things were shaping up, he obtained the industrial license in no time, and was assured of the visas for the staff. After explaining the situation to Zubair, I flew down with Sundaram to select the staff.
In the first wave of interview on a weekend, we were able to select some 110 workers, including a bright and chirpy young woman by name Nayana, who in the years to come was not only a role model, but an outstanding manager.
Since there were a couple of days holidays for the New Year, I took off for a brief hop to see my parents in Madras, and returned back to continue our quest for the balance of the staff. All done, we returned back to UAE.
By this time, the machinery ordered was already on high seas; the follow-up for visas was good, though no comparison to the Free Zone in Jebel Ali. The technical team arrived some ten days earlier to get the machines in place, from the CKD in which they were received. I had introduced the electrical contractor and carpenter to Sundaram to do the negotiation and finalize the details himself, as it was neither my intention nor my desire to get involved more than necessary. Besides, Sundaram, being an engineer of standing, had years of construction experience, and we had converted an unused house into a factory-cum-residence for the staff as well.
I procured the first order for them, and introduced Sundaram to many others in the industry so that he had continuous orders for months on end. Couple of years later, again, I assisted Sundaram in building a complete factory, which was built, brick by brick, in a large area, including living facilities for the entire staff, which had grown to more than 240 by then.
AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts. From being the advisor to exporters, he took over the mantle of a trader, travelled far and wide, and switched over to setting up garment factories and then worked in the US. He can be contacted at email@example.com.)
You may want to read more:
Selling of pledged shares, along with resignation of 4 directors within a month has prompted fears that something is deeply amiss with the company
Varun Industries recently hit a 52-week low Rs42.65 on the National Stock Exchange (25 April 2012) amidst share pledging by the promoters and invocation by institutions triggering fears of a possible margin call. Additionally, several directors have resigned from the board. According to the filings, SK Srivastav, KL Gopalakrishna, MS Sundara Rajan and S Rajagopal have resigned from the directorship in the last one month alone. The reasons are unknown. The stock has tanked by a whopping 85% within a spate of over two months since it touched a high of Rs290 on 23February 2012. The stock is currently quoting at Rs42.95 (26 April 2012).
According to recent filings with NSE, three institutions—IFCI Venture Capital Fund, Kotak Mahindra Investments and Tata Capital—have invoked a combined total of 13,53,018 shares of the shares pledged by the promoters, representing 4.65% of the company’s total shares outstanding. According to NSE filings the promoters, particularly its chairman and managing director, Kiran Mehta, has been pledging shares since 5 December 2011, the same month the company decided to sell 51% of its stake in its onshore oil block at Madagascar to China's Da Qing Oilfield Company for a hefty $150 million. Currently, the promoters have pledged 62,29,349 shares of the company, which amounts to 21.40% of the shares outstanding.
According to media reports, the so called “partnership” will unlock “value” for the company. "We are very excited about this partnership. This is one of the major steps toward unlocking the value of our assets in Madagascar. This development gives us the confidence to nurture and develop our other assets,” said chairman Kiran Mehta, according toEconomic Times
Moneylife earlier had written, on 3 April 2012, to National Stock Exchange of India (NSE), Bombay Stock Exchange (BSE) to find out to whom the company had pledged their shares to, since there was no mention of the pledges in their filings on, and prior to, 3 April 2012, which is in contravention to Securities Exchange Board of India’s Section 31(1) and 31(2) of the SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011. According to the filing on 3 April 2012, unknown institutions had invoked 20,43,000 shares of the company, or 7.02% of the shares outstanding.
We sent an email to company’s corporate communications department to find out pledgee details and the reasons for the same. Our mail to the company’s Corporate Communications department instead found its way to Mr Hiren Shah, Senior Vice President, Concept Investor Relations, who handles investor relations on behalf of Varun Industries. Mr Shah said that he would get back to us. However, after another reminder, there has been no reply thus far.
We had also sent emails to NSE and BSE seeking pledgee information.
When we asked NSE for the pledgee details, the spokesperson Ms Divya Lahiri stated that NSE merely “collects whatever documents companies give us and we put it up online”. Asked whether there is thorough due diligence so as whether SEBI’s regulations are complied with, the spokesperson declined to comment.
There are many reasons why companies pledge their shares. One of them is chiefly for taking loans to expand the business in the interest of the shareholders. However, some companies’ promoters take personal loans, say to buy a Ferrari or a lavish home loan, and thus pledge their shares. Sometimes, in order to take a loan, banks ask for collateral and shares are one of them. In this case, we do not know the real reason behind the share pledge, especially after the company garnered $150 million. Are they hiding something from the shareholders and running away with the loot? One thing is clear though, the company has not taken measures to prevent the share price decline.
With the share price down 85%, the shareholders have suffered a lot, while the regulators are mute to the issue. With resignation of four directors within the last one month, it is a sign of things that are not right within the company. Neither the company nor the regulators are taking cognizance of the sharp fall in its price.
Varun Industries is listed on NSE and BSE, and is supposedly into steelware exports, agri-products, oil and natural gas, wind energy, uranium, heavy mineral sand, gold mining, gems and jewellery.
“Quantitatively, monsoon season rainfall is likely to be 99% of the long period average (LPA) with a model error of 5%,” earth sciences minister Vilasrao Deshmukh said
New Delhi: India has predicted a normal monsoon for the third consecutive year, bringing relief to millions of farmers who depend on good rains for a bumper harvest, reports PTI.
“It will be a normal monsoon this year,” earth sciences minister Vilasrao Deshmukh announced at a packed press conference here.
He said there was 47% probability of a normal monsoon as against 24% probability of below normal rains this season.
“Quantitatively, monsoon season rainfall is likely to be 99% of the long period average (LPA) with a model error of 5%,” Mr Deshmukh said.
The LPA for the country as a whole is pegged at 89 cm which is the average rainfall for the 50-year period from 1951-2000.
Monsoon is crucial for the kharif crops such as rice, soyabean, cotton and maize because almost 60% of the farm land in the country is rainfed.
Agriculture sector will maintain its growth momentum of around 3.5% and may surpass it, Abhijeet Sen, member, Planning Commission told PTI.
India is estimated to have harvested a record 252.56 million tonnes of foodgrains in the 2011-12 crop year as against 244.78 million tonnes in the previous year.
However, weather scientists said that observations of two parameters were not too good for the monsoon. One was the possibility of development of El Nino conditions or warming of the equatorial central Pacific Ocean and the other was the above normal snow cover over the Eurasian region.
“There is inverse relation between the monsoon and the Eurasian snow cover,” D Sivananda Pai, chief monsoon forecaster and director of the National Climate Centre said.
He said the weak La Nina, usually associated with good rains in India, was almost ending and scientists were expecting neutral conditions to prevail throughout the monsoon season.
“There is a large probability for ENSO neutral conditions. We have to watch further for possible El Nino conditions,” Shailesh Nayak, Secretary Earth Sciences said.
India had witnessed drought in 2009 when the El Nino conditions or warming of the central Pacific Ocean affected the monsoon rains.
Rains were within long-term averages in following years, helped by La Nina which is the cooling of the central Pacific Ocean.
The India Meteorological Department (IMD) will issue an update to the forecast in June.
The IMD forecast for this season contains inputs from Indian Institute of Tropical Meteorology (IITM), Centre for Mathematical Modelling and Computer Simulation (CMMACS), Space Applications Centre (SAC) and Centre for Development of Advanced Computing (C-DAC).
The IITM model has forecast 100% rainfall of the LPA, the CMMACS has predicted 102% of the LPA, the SAC has forecast 103% of the LPA and the C-DAC has projected 108% rains of the LPA.
Meanwhile, the government last week constituted an Empowered Group of Ministers chaired by finance minister Pranab Mukherjee for effective management of a drought situation.
The EGoM is authorised to review the situation and take “quick and timely decisions” on policy issues as well as other issues for effective management of drought and related issues.