The financial institutions (FIs) are firm in their decision to divest, inthe open market, their equity stake in recalcitrant Indian companies. Thisthey propose to do in the case of companies which do not add to `shareholdervalue'. More often than not the FIs, besides being large term lenders,constitute the largest single owner of a corporation's equity. It followsthat with divestment, the FIs will put a new controlling interest in thesaddle. But corporate India has cried foul.FICCI and Assocham, the representative associations of domestic bigbusiness, will not countenance such a threat. They have sought theintervention of the finance minister. He must make sure that FIs do notdivest in the open market; protect the existing controlling interests,irrespective of their competence, and ensure that they are given the firstright to purchase the shares (or the first right of refusal). This isanother way of getting negotiated cut-price deals. In short, the status quo,however serious the failures in corporate governance, must be protected. Ifthe FIs are given a free hand, why, they might even hand over Indianbusinesses to multinationals(!), so runs the disaster scenario put out byFICCI-Assocham.
Ficci has drawn the finance minister's attention to the plight of ModiRubber. However, the FIs have tried in vain to get the Modi brothers (incontrol) to ensure loan repayments. The decision to sell the stake in ModiRubber in the open market is a desperate measure. It has been welcomed bythe share markets. But the Modis, who have all along pleaded empty-coffers,are apparently willing to buy the equity stake of the FIs. (This is whatFicci-Assocham are touting). But nothing prevents the Modis from going infor a mega preferential share issue to themselves: that would convey themessage to shareholders, including the FIs, that under their control, ModiRubber would sooner or later have an enviable bottomline. However, FI salesto the Modi brothers would leave net NPA assets in their books, besidesputting minority shareholders out in the cold.
The best bet is to get a new controlling interest (management) toresuscitate Modi Rubber. If this calls for an MNC, why not? Coca Cola'sacquisition of Parle raised no eyebrow.
The finance minister should not intervene, nor advise the FIs. They shouldbe free to act as corporations; and to devise such measures as they can tosecure fair redressal. Modi is one of many corporates who have let down FIsaiding business with public money. Corporates who abuse the trust of FIscannot be condoned. The FM must say a firm no to Ficci-Assocham.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.