It is not what finance minister Arun Jaitley wants to hear right now, but there is no getting away from it. CRISIL reports that capital expenditure next year could actually fall; it is a 4% drop if one considers a clutch of 192 companies that accounted for nearly half of last year’s investments, and a much steeper 11%, if only private sector players are polled. CRISIL puts the reticence down to lack of visibility on demand but there is clearly more to it, for instance, the inability to cobble together equity for instance while being over-leveraged. If industry isn’t going to spend to build new assets, it is important to salvage all the physical assets worth thousands of crores of rupees that aren’t being put to use because promoters aren’t able to run the plants efficiently.
The way to go about this—apart from hurrying up the coal and gas linkages for stranded power plants—would be to facilitate the handing over of under-performing assets to new owners who have the financial wherewithal to buy them out. The one reason industrialists don’t come forward to buy assets—especially foreign companies—is because they are not confident of being able to handle the legal system and the red tape.
Incumbent promoters are pros when it comes to getting their cases stalled in the courts, at whatever level, thwarting the efforts of banks. The only way to resolve this is for the government to push these cases in the DRTs, lower courts and the high courts, so that assets are retrieved in time to make them usable and companies don’t go under. While it may seem unjust, unfair, and even harsh, banks must have the upper hand and it is up to the government to make sure there is a swift change of hands.
That is not as impossible as it may seem. After all, the transfer of the ownership of SpiceJet, where the aviation ministry took it upon itself to become the appropriate authority to ensure that the new promoters didn’t need to make an open offer to the minority shareholders and also facilitated other clearances, is a case in point. Exactly six years back, there was the speedy resolution of the sale of Satyam Computers where the ministry of corporate affairs quickly cobbled together a three-member team to ensure the company was sold to a willing buyer.
The way out is a similar high-powered team, a group of top-level people who are empowered, whose job it will be to fast-track sales of companies in trouble—simplistically put, a boutique which has on offer companies of all hues that are underperforming and unable to pay their dues. Among the team must be a couple of members from the judiciary, to deal with the courts, and government officials to speed up clearances and bankers to protect the interests of lenders. Bankers must put up their cases to this team as soon as they spot the first signs of trouble—they have been leaving it too late. This way, promoters can’t dither and bankers will be able to exert more pressure than they can through bilateral negotiations where promoters have been known to use their political connections to not pay up. An open and transparent mechanism by which all clearances—Companies Act, CCI and Sebi—come swiftly is what we should be looking for.
Else, we are going to see hundreds of companies closing down. While banks have been trying to help promoters by giving them more lenient terms to repay their dues—via the CDR cell—many of the recasts aren’t working out. The estimated slippage from the outstanding R2.7 lakh crore of the restructured assets portfolio is 30%, or roughly R80,000 crore.
Unless these companies are handed over quickly to new promoters or managements, as early as possible, by putting them on the block, many of them will perish. Way too much time is being given to incumbent owners to come up with fresh capital—take the Kingfisher episode, for instance—or rope in a strategic partner. Even after public sector banks decide they want to dispose off the asset, the outdated auction systems—where the reserve prices often leak—work against them. By then the plant and machinery have become scrap and the promoter has siphoned off enough to ensure he lives the rest of his life in style.
If banks are to beat the legal system, the government must back them. Once the banks have control over the company, it will be easier to put in place a competent management and there will be no shortage of financiers, whether private equity players or qualified institutional players. It is also wrong to believe there aren’t enough entrepreneurs willing to run these units; many of today’s smaller infra players started out small, and there is surely enough talent to take over an under-performing unit and run it efficiently. It is simply the process of acquiring that is intimidating. In the absence of a fast-track mechanism to transfer ownerships, banks are casting off assets—writing them off or selling them to ARCs at huge discounts—as they rush to clean up their balance-sheets. While they have been pressuring promoters to sell their companies or plants, the deals have been few and far between. It is time for a whole new way of dealing with incompetent promoters.