Be aware, companies are once again raising money through unsecured NCDs and they are being hawked by well-known market intermediaries. At a time when the government and its regulators are doing their best to lure investors into the capital market, it makes good sense to look in the rear-view mirror
Industry is the modern temple of India, Jawaharlal Nehru used to say. But when these temples turn into rogue durbars, is a matter of time and faith? This story is about shattering of that faith and should work as a lesson. Recent non-convertible debenture (NCD) issues of India Infoline, Muthoot Finance, Shriram City and others to collect Rs2,150 crore in unsecured debentures in September alone, has made me to write these few paragraphs.
The biggest losers of the declining share market are the corporate houses. Not only their market capitalization or net worth reduces, their cheating ability also gets greatly hampered. A booming market creates exuberance, lifts sentiments and attracts hoards of people out of which some can be easily fooled. In bad markets, they cannot find enough investors to sell their dream projects at exorbitant premiums nor can they raise debt in equity linked schemes or at low interest rates.
Over two decades ago, industrialists, past and present, had created a sort of fashion of raising money through secured debentures, equity linked or partly convertible. The money was being collected as if they don’t have to return, almost like now. Securities and Exchange Board of India (SEBI), regulators, ministry of corporate affairs, ministry of finance were like a traffic police without a challan book. That was the time I was posted to UK on a long duty with good foreign allowance and salary being deposited in India. I could not have asked for more, till a friend of mine, son of an Indian stock broker, visited me and advised me that I should buy NCDs or khokhas, as these were popularly known then, to gainfully deploy my funds. I had no idea, his noble advice, will bring me face to face, with the stark reality of India’s “blue blooded crooks” of Dalal Street.
On my behalf, my friend bought every NCD (khokha) that came for selling. And by the time I landed back in India, the file contained NCDs of 169 companies in assorted numbers. I almost had to make a compendium to keep record of interest payments, redemption dates and so on. Willy nilly, my friend had thrust a full time job on my head and made me capable of joining CII, FICCI, Assocham or ministry of corporate affairs as a company adviser. After all, who could know more than me about these companies?
Before I expose the misdeeds of each of these companies, some headed by people of greatest eminence and national award winners, occupying chairs at IIMs, honoured at glittering functions of industry, CII, FICCI and Assocham lecturing the nation in print and television media and generally being photographed with our president, prime minister and other honourable ministers, there is also an excellent experience.
The best and most remarkable outcome of this ordeal was a great lesson to me. I observed that the only companies, who paid interest and redemption amount on time, were that of Tatas. In fact they posted the cheques four to five days in advance so that on due dates the amount is in our accounts. That is the reason, Tatas earn highest regards and honour in India and abroad. Being fare and honest is the greatest asset of any company in the long run. Even if investors lost in Tata companies shares, no one has ever doubted the integrity of Tata management. No other business house of India stands up to that test.
Reliance Industries, owned by Mukesh Ambani, the richest man in India, paid interest and redemption amount, but posted the cheques on due date to be received by us three to four days later. This and other difference between Tatas and Ambanis are reflected in valuations of the companies today. With millions of investors, Reliance saved millions of rupees every six months in four to five days interest cost and may have been enough to finance at Boeing 727! A 27-storey house for six people, consuming Rs70 lakh every month in electricity bill, made Ratan Tata say, “How can some people even think like that”—it reflected exactly what many ordinary Indians and Reliance shareholder felt.
The JK group would dispatch cheques 20 days late payable only at Kanpur, gaining 20 days more. But then Vijaypath Singhania breaks world record in microlite flying in hot air ballooning for which he was awarded a Padma Bhushan. One of the Singhanias was heading CII and FICCI advising government and business world—but what about ethics in ensuring that your debenture holders get due interest?
DLF chief KP Singh celebrated his 80th birthday in Udaipur with the famous singer Shakira performing for his guests, while his projects are being delayed for over 18 months, creating untold miseries for buyers. Now look at the salaries that CEOs of family-run companies are taking away. Navin Jindal, also a member of parliament draws Rs73.4 crore (now makes news for getting cheap coal allocation and selling expensive power), Kalanithi Maran and his wife (in the news for the telecom scam), Rs114 crore, Vijay Mallya another MP earns Rs41.4 crore for sinking Kingfisher, Kumar Mangalam Birla pays himself Rs39.7 crore, Pawan Munjal Rs34.5 crore, Sunil Mittal Rs21.3 crore respectively. This is in addition to the seven star lives that are all paid for by their companies. Some may argue, that if David Beckham gets $5 million for kicking a ball, why not a hard working CEO. But remember these salaries are in addition to what they earn with other shareholders as dividends.
The fact is that they fuel the kind of resentment that leads to an “Occupy Wall Street” sort of agitation. My appeal to corporate world is to pay attention to public perception. Only then, your charity, donation to temples, educational trusts, and philanthropic ventures will please God and have true and lasting effect on you, your family and the society. Instead, support NGOs who speak against the wrongdoing in India.
Farishton se insaan banna hai behtar, magar usme lagti hai mehnat zyada
So what does an investor do about non-payment or late receipt of interest and redemption amounts? Complaints to SEBI had no effect at all. The market regulator used to respond three or four months later with a routine printed postcard carrying some reference number that matter is being taken up with the company. Nothing happens. The ministry of corporate affairs and ministry of finance won’t even respond, despite repeated reminders. Companies do not care, many have changed registrars and addresses as well; and imagine we are talking of secured debentures. It was open loot. That was the shameful state of affairs. In Dubai, I happened to meet Rajinder Singh Batra, chairman of Rajinder group of companies who looted Rs1,600 crore through NCDs and Rs3,000 crore from Indian banks, who was laughing at Indian procedures. (For the record the Rajinder Steel group, which began life in Kanpur is among those companies which simply dumped their Indian operations and walked away in the last 1997, when a slew of steel majors turned defaulters and were bailed out by the banking system—banks in turn are bailed out by the exchequer. None of the lenders have made any attempt to trace Mr Batra who is apparently living comfortably in Dubai). No wonder, India’s face is completely blackened today in coal, 2G & other scams. Unchecked animals and animal spirit. Financial crime, even of the scale that Rajinder Steel indulged in, goes unpunished, because it would expose the complicity of the lending organisations and their employees.
Be aware, companies are again raising NCDs and that too unsecured. Many of these are in the realty sector offering dubiously high returns are hawked by well known market intermediaries. SEBI and the government should be pro-active to avoid reoccurrence of loot. If companies can deploy funds gainfully and regularly pay the investors, it is a noble and nation building activity.
First time in the history of mankind, so many people are retiring or becoming senior citizens at such a pace. In India alone, 22,000 people turn 60 every day and about two lakh state and central government employees retire every month, many in lakhs from the private sector. Imagine the scope for tour and travel, wealth management and insurance companies. This is unprecedented and their money needs to be productively channelized. Creating vibrant debt market therefore, is urgent.
Ideally, NCDs must be listed and pay monthly or quarterly interest, not yearly and report their net worth or non-performing assets (NPAs) every quarter to the RBI and SEBI. Their directors should deposit personal post dated cheques and passports as precautionary and deterrent measure. In short, stringent and regular monitoring is paramount to avoid scams and unscrupulous entrants. CII, FICCI, Assocham, ANMI and media can play heavenly role in encouraging investment led growth of our mother India.
First promoter on my list starting with alphabet A is the owner of Apple Industries (he is a regular on Page 3 along with his wife), who also owned Atash Industries. He is now the MD of Hexaware, a poster boy of business channels. Apple Industries would not pay interest on time and we got our 1st and 2nd instalment of debenture redemption after many reminders. The third instalment never came no matter what we tried, even visiting his office at Fort, Mumbai. Probably the company became sick, but the promoters are hale and hearty and in brand new avatar. For more details on all these companies please access www.watchoutinvestors.com
Hamse poochho izzat walon ki izzat ka haal kabhi, hamne bhi is shehar mein reh kar, thoda naam kamaya hai.
(Commander SS Kumar is a retired commander from Naval Aviation Branch. He is a gold medallist in Mechanical Engineering and had done his MBA from Jamnalal Bajaj Institute of Management Studies. He received his initial training in aviation in UK for three years. He was also posted in the US embassy for four years.)