Regulations
What the Essar Diaries Mean
The Essar Diaries are a peek into a sordid story of crony capitalism, first leeching off public shareholders and then public sector banks
 
The Essar diaries, which are part of an affidavit filed by the Centre for Public Interest Litigation (CPIL) in the Supreme Court of India provides a rare peek into the way influence-peddling by crony capitalists actually works in India. The leak of internal emails by a whistleblower reveals that the top secret Union Budget details were available to Essar in 2012. And why not? The group has enormous funds earmarked to buy these favours. For instance, the emails reveal that Gulfstream jet was sent to Trinamool Congress leaders, including chief minister Mamata Banerjee and a few journalists, at the behest of president Pranab Mukherjee for his swearing-in ceremony. 
 
They indicate that Essar was able to influence the pricing and tax policies of the petroleum & national gas ministry under Veerappa Moily. This is corroborated by a separate investigation and arrests in the ‘corporate espionage’ scandal about purchase of stolen classified documents from the petroleum ministry. 
 
By now it is widely known that the Essar group runs a large public relations (PR) operation to keep key journalists-cum-fixers happy. It generously opened its purse strings to fund a global ‘think-fest’ by Tehelka allegedly as a quid-pro-quo for killing a story against it. 
 
At the same time, Essar uses every trick in the book to hound those who expose its strategy of ripping off banks and institutions and diverting funds to finance its growth. I have experienced this personally. In the mid-1990s, I was regularly reporting about Essar’s rapid growth through constant fund-raising and diversion of loans from financial institutions. The entire steel sector was looking for hefty bailouts by banks and institutions, which I exposed at The Times of India and, later, at The Indian Express. So, the group tried to intimidate me by filing a criminal defamation case at Surat. It also lobbied editors to stop my columns. This carrot & stick policy has worked well for decades of its dealing with bankers, bureaucrats, journalists and politicians.
 
Yet, when successive Reserve Bank of India (RBI) governors express concern at the mountain of bad loans in the system, there is rarely any attempt to plug the brazen manipulation of the system for personal aggrandisement. At the height of Essar’s problems in 1999, the chairman of Bank of India (BOI) sanctioned a fat bailout to a group company on the eve of his retirement. Two months later, he joined the group as an advisor at a fee that was a multiple of his last salary. RBI chose to look the other way and asked no questions. 
 
Soon, every other institution fell in line and wrote off several thousand crores of rupees worth of loans and overdue interest to several group companies. 
 
Again, when Essar Steel defaulted on $250 million floating rate notes it had issued in 1994, it tried hard to force the government to bail it out as though it were a quasi-sovereign default. This was in 1999. Eventually, bondholders received only 24% of the face value of their investment. 
 
One of Essar’s strategies to minimise the public impact of its financial problems is to de-list companies at a low buyback price when there is no more scope to raise funds. In 2010, Essar Energy Plc was listed on the London Stock Exchange at 420p a share. 
 
In 2014, the group bought back the 22% public shareholding at 70p a share, unfazed by the angry backlash. It attempted to de-list Essar Oil and even sent notices to the Indian stock exchanges. Essar Shipping and Essar Ports had also informed stock exchanges that they had the required board approvals to de-list their shares. The group’s shareholders know that Essar Steel was controversially de-listed in 2007 at a low Rs48 per share. Today, when it owes Rs30,000 crore, lenders cannot even hope for an upside by converting loans to equity if commodity prices revive. 
 
The Essar diaries, and leaks, pertain only to a small recent phase, but provide an insight into how this well-oiled system of influence has worked for the past 30 years. Essar had struck gold with its investment in telecom and had a real chance of cleaning up its act. Instead, it only used it to start borrowing heavily again and run up even bigger debts from Indian banks and institutions. 
 
In fact, telecom and the 2G scandal is the first time that group chairman Ravi Ruia and his nephew Anshuman Ruia are personally facing trial along with several top employees and their three telecom firms—Loop Telecom, Loop Mobile India and Essar Tele Holding. Ravi Ruia, now needs court permission to travel abroad and, on 24th May, an irritated judge asked him not to waste the court’s time with repeated and causal requests for permission.
 
At the end of April this year, a consortium of 24 banks has a massive exposure of Rs30,000 crore to Essar Steel alone. In May, HDFC Bank decided to take a hit and sold Rs550 crore of its outstanding debt to Edelweiss Asset Reconstruction at a 40% discount. This is a loss of Rs200 crore. 
 
Bank of India’s auditors have asked it to classify its Rs500-crore exposure to Essar Steel as a bad loan. Among its major lenders, State Bank of India (SBI) has an exposure of Rs8,000 crore to Essar Steel and ICICI Bank has an exposure of another Rs6,000 crore. 
 
Essar Steel’s outstanding of Rs30,000 crore is after it was made to raise Rs4,850 crore through a sale of assets and the promoters were made to pump in Rs1,300 crore under pressure from lenders. It is interesting to note that the money that was allegedly brought in by the promoters is twice its meagre net profit of Rs648 crore in the past financial year. 
 
When the group’s strategy itself is to live off public funding, its financial problems are not limited to Essar Steel. Essar Shipping is also making losses and has reported a consolidated net loss of Rs159.69 crore for the quarter ending 31 March 2015. Essar Ports is also out there seeking relaxed loan terms from its bankers on its existing Rs6,000 crore outstanding to banks and wants money for a fresh investment of Rs3,000 crore. 
 
This does not include the undue benefits running into hundreds of crores of rupees that ‘friendly’ officials gave the group over the years. Here is only one instance. A 2013 report of the CAG (comptroller and auditor general of India) on public sector undertakings lists multiple counts on which Gujarat Petronet officials favoured the group and passed on undue benefits running into hundreds of crores of rupees collectively to Essar group companies—Essar Steel, Essar Power Gujarat Ltd. The amount was over Rs650 crore. 
 
For over a year now, Care Ratings has had a ‘default’ rating on Essar Steel but do you hear the government ordering a forensic audit into how the funds were used or diverted? Any such order can only be an outcome of the Supreme Court litigation filed by CPIL. That Essar’s outstandings can wreck the profits of major banks ensures that they are again working at ‘restructuring’ its loans with tacit support from the government. This is a sordid story of crony capitalism, first leeching off public shareholders and then public sector banks. 
 
The Modi government claims to be keeping businessmen at arm’s length. Prime minister Narendra Modi told a newspaper a few months ago that “my government will make policies, if you fit into it, come on board, or stay where you are. My job is not to spoon-feed anyone.” It is ironic that public sector banks, owned by the government, are continuing with impunity to work at bailing out businesses houses like Essar.
 

(Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected])

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COMMENTS

Gupta

1 year ago

These people are a shame of India. Each of the leading companies of the group have cheated every possible stakeholder group. While every company in the group has a shining track record of default, a visit to their office at Mahalakshmi would shock any banker. You can see the money pouring of the ceiling and walls and floor and furniture as you walk around the lavish structure overlooking the race course. I haven't been a lucky visitor to their house, but I can only imagine how it would look.

It is appalling that despite over 2 decades of consistent record of defaulting, banks still lend such people more money. I'm personally shocked that even a bank like HDFC couldn't smell the coffee despite such a pungent smell that was hard to miss. The only difference between them and others is that they cut losses and moved on and hopefully will never dare to lend again to these people. This is probably the only Group of this size in India, if not the world, where the promoters call on bankers all the time rather than the other way round. On a more judgmental note, if bankers believed in face reading, no one would ever lend money to these people after seeing any or all from the (in)famous family.

Gupta

1 year ago

These people are a shame of India. Each of the leading companies of the group have cheated every possible stakeholder group. While every company in the group has a shining track record of default, a visit to their office at Mahalakshmi would shock any banker. You can see the money pouring of the ceiling and walls and floor and furniture as you walk around the lavish structure overlooking the race course. I haven't been a lucky visitor to their house, but I can only imagine how it would look.

It is appalling that despite over 2 decades of consistent record of defaulting, banks still lend such people more money. I'm personally shocked that even a bank like HDFC couldn't smell the coffee despite such a pungent smell that was hard to miss. The only difference between them and others is that they cut losses and moved on and hopefully will never dare to lend again to these people. This is probably the only Group of this size in India, if not the world, where the promoters call on bankers all the time rather than the other way round. On a more judgmental note, if bankers believed in face reading, no one would ever lend money to these people after seeing any or all from the (in)famous family.

Gupta

1 year ago

These people are a shame of India. Each of the leading companies of the group have cheated every possible stakeholder group. While every company in the group has a shining track record of default, a visit to their office at Mahalakshmi would shock any banker. You can see the money pouring of the ceiling and walls and floor and furniture as you walk around the lavish structure overlooking the race course. I haven't been a lucky visitor to their house, but I can only imagine how it would look.

It is appalling that despite over 2 decades of consistent record of defaulting, banks still lend such people more money. I'm personally shocked that even a bank like HDFC couldn't smell the coffee despite such a pungent smell that was hard to miss. The only difference between them and others is that they cut losses and moved on and hopefully will never dare to lend again to these people. This is probably the only Group of this size in India, if not the world, where the promoters call on bankers all the time rather than the other way round. On a more judgmental note, if bankers believed in face reading, no one would ever lend money to these people after seeing any or all from the (in)famous family.

Mrinal Kanti Ganguly

1 year ago

Their companies never make any profit, shareholders never get anything, but the promoters draw huge salaries , relatives are appointed in high posts, with high salary and perquisites. They are really blessed and born with silver spoon.

REPLY

Gupta

In Reply to Mrinal Kanti Ganguly 1 year ago

Not silver spoon. They are born in pools of diamonds!

Bharat Bhansali

1 year ago

i don't understand if this is the real picture of a group and its holdings. In other words it the hard earned money of the people which is just thrown away by banks and bankers for their own interest and it seems very little chances of that money to come back.
Why nothing is happening on this??

Jehangir Chinoy

1 year ago

Excellently expressed 'plain-speak!' High time, too. Thank you.

Suketu Shah

1 year ago

Wonderful article.An eye-opener.We would never know this if this wasnt reported by ml.Keep it up.

Mohit Surana

1 year ago

Thank you writing this. I am a resident of surat and most of us know that intention of the company is not good as they are not paying their suppliers on time and sometimes they don't even pay which results in Bad debts for suppliers as a result some of the suppliers/contractors of Essar goes bankrupt and their individual loan accounts also becomes NPA. This vicious circle continues. If we add these NPA's also then figure might be very high.

Soundararajan Srinivasa

1 year ago

I studied Suchetha Dalal's article with the diligence it deserves. The first ever crony capitalism was the Ambassador car. I keep track of all misdemeanors and financial skullduggery. The loss to the nation is scandalously huge. The perpetrators are the bribe givers and takers -all mega.As a former Addl Dy CAG: India, I wish to make three points here.

1. Nip it in the bud. CAG reports should come into the public domai, on the day it is tabled, which should be earliest. All governments do this on the last day.

2. Media should carry more such stories ASAP. What happened to SPIC?

3. NPA should be handled without remorse by an independent agency above the CMD of a bank.

Innamburan

REPLY

Gupta

In Reply to Soundararajan Srinivasa 1 year ago

CAG is an auditor. They come into the picture long after the event is over. Why doesn't anyone question why money is even lent to such people in the first place? Essar group has the most impeccable record of default. Nothing from their stable has a default free record. These are perennial defaulters. Still people lend money to them. Why? Even a financial idiot would not lend money to them, all you need is basic little common sense. that's all!

S K Gupta

1 year ago

Welcome Done! Comprehensive and Fearless piece that's how it should be.

S Padmanabhan

1 year ago

Clearly the mistake is with RBI which appears grossly inefficient and corrupt too.

Essar, Ispat, Mallya, Sahara etc have taken advantage of the system aided ,abetted by corrupt bank chairmen who have gone unchecked by RBI. If Governor Rajan spells out a policy of sacking of Bank Chairmen who allow such bad debts, these industrialists will not have courage to cheat the system. Why is RBI keeping quiet.Controlling inflation is not the only job of RBI.

The amounts owed by these defaulters if recovered will fund the rural agriculture and perhaps we can write of the entire agro loans of draught hit states.May be this wiil also help reduce interest rates , reduce inflation.

Perhaps RBI does not want to an toganise these defaulters and the powers that be.

In fact our focus is to reform RBI.Criminals will always exist, if we can set up a good policing system,we can avoid such crimes.

REPLY

Gupta

In Reply to S Padmanabhan 1 year ago

Governor Rajan is the first bold person who is actually trying to take baby steps towards cleansing this NPA problem at a more fundamental level. This will take time and we hope he lasts to take the process to conclusion.

suryakant

1 year ago

Biggest white collar expose story...

shanti Patel

1 year ago

Congratulation Mrs Sucheta Dalal for EXPOSING such Industrial House.
Hope you continue to do so as and when required.

Shanti K. Patel
Hon.Secretary- Bombay Shareholders Association

Veeresh Malik

1 year ago

Kingfisher/Mallya's debts of about 7000 crores appear to be nothing in front of the estimated 90000 crores of debt that the Ruias/Essar have managed!

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Lord Hanuman gets eviction notice in Madhya Pradesh!
To ensure removal of encroachment upon a road by a Hanuman temple in Madhya Pradesh's Bhind district, authorities here have issued notice to the temple's main deity -- Lord Hanuman!
 
The temple is situated in the district's Bajariya locality and a portion of it is deemed to be encroaching upon the public thoroughfare.
 
Pursuant to a directive of Gwalior High Court to remove the encroachment, the municipal authorities on Friday issued notice addressing Lord Hanuman instead of the temple's priest or the trust.
 
The notice to Lord Hanuman reads: "You have illegally encroached the road which causes public inconvenience, leading to possibility of accident. Despite earlier directive to remove the encroachment, you have not complied. You were given the Gwalior High Court's order. But you didn't comply. A contempt of court case has been initiated against you." 
 
Meanwhile, with the notice drawing wide public attention and adverse comments, the top municipal officials later said the notice was mistakenly issued and would be recalled.

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COMMENTS

Shri Hanuman Das

1 year ago

Temples should be built on hills, not on roads. Road is a symbol of outer world in which we indulge in our day to day life. On the other hand, a temple is supposed to bring inner transformation in us. I did 1 year Sadhana at Setuu Hanuman Bodhi and I have written my experiences in a blogpost at https://medium.com/setuu-hanuman/when-i-met-lord-hanuman-c19abe99ebb8

May Lord Hanuman be with all. May the light of wisdom enter everyone's soul.

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