As stakeholders put pressure to reform or lose their
companies, promoters are shedding their reluctance to let go control
A tsunami is battering the boardrooms of Indian companies.
Ends can no longer justify the means.
Regulators are cracking down hard. Big and small companies are facing
the ire of scorned investors. The central bank has denied extension to the
bosses of two private banks for hiding bad assets. Another was forced to go on
leave for favoring a borrower. One new-age banker’s method of reducing his
holding got a stern rebuke and two small finance banks were reprimanded for not
sticking to the timeline for dilution of stake. Lenders told a jeweler to
service the debt instead of using the reserves to buy back shares. Auditors of a food processor and an IT
services retailer quit mid way through the finalization of the annual results,
citing inadequate disclosures. A large-cap chemicals producer was dumped due to
the inability of the promoters to explain the restructuring within the group.
Costly acquisitions by a leading tech solutions exporter eventually saw the
departure of the first CEO who was not the promoter. The legendary money manager
of a home mortgage provider escaped narrowly from getting ejected by foreign
investors for being on the boards of too many companies. The reappointment of
the managing director of a tyre maker on a salary that was nearly 7% of the net
profit that had declined by a third over the year was nipped by angry
shareholders. A former chief of the market monitor had to quit shortly after
his appointment as a director to rescue a cash-strapped financier and developer
of infrastructure after pressure from institutional investors for his
association with a bankrupt airline. The top brass of India’s leading trading
platform was bundled out after a whistle blower complained of servers on the
premises of some brokers allowing them to jump the queue. A former bureaucrat charged with conspiracy in
facilitating a shady telecom deal had to make a hasty departure from his top
post at a private bank on the insistence of stock exchanges.
The war on bloated, sluggish and extravagant bosses is just
one side of the story. The other important part is the shedding of reluctance by
the owners to be the sole occupants in the cockpit. Technological disruption,
leverage, change in market tastes and competition from deep-pocket players are
shaping the decision. The Tatas and a German steel maker are now equal partners
in their European venture and KM Birla, too, has joint custody with a UK group of
the Indian cellular business. The Tantis manage Suzlon Energy with Sun
Pharmaceutical Industries’ Dilip Sanghvi. The offer of the Essel group, in
possession of nearly 40% of the total promoter holding, to offload half of the
shares in Zee Entertainment Enterprises to a foreign investor is the latest
wave of change that is shaking up family-run enterprises in India. After the
upheaval in the media space as it transited from print to digital and cable to
satellite, streaming services are posing a new delivery challenge. At home,
Mukesh Ambani has created an insatiable beast for engaging fare and last-mile
connectivity. It took a couple of months of tough negotiations for Zee to get
back on to Jio’s menu. In the meanwhile, RIL snapped up two listed multi-system
operators, putting
pressure on the group’s direct-to-home broadcaster Dish TV and cable distributor
Siti Networks, whose consolidated June 2018 quarter net loss widened 31% over a
year ago.
Enlarging capital hurts return ratios. Leave aside hefty
valuations, the market response to even modestly price offering from a
struggling enterprise is uncertain. The Subhash Chandra group’s likely gradual
withdrawal from the general entertainment segment follows Old Economy media
mogul Rupert Murdoch’s divestment of his film and TV portfolio in a US$
70-billion cash-and-stock deal to another conglomerate, Disney, while retaining
the bouquet of news channels just as Zee Media Network will remain within the fold. Fears of the National Company
Law Board auctioning assets to recover bank dues have led to the scramble to
sacrifice capital-guzzlers and peripheral revenue-earners. BK Birla of Century
Textiles and Industries transferred the non-core business of cement to pare
debt and embark on capital expenditure. Usha Martin sold its steel division to
the Tatas to lighten the balance sheet and focus on the wire rope business. DLF
put up 40% equity of its rental arm on the block to flank the real estate flagship.
Naresh Goyal ceding major or complete control of ailing Jet Airways to the
Tatas or to strategic investor Etihad Airways will be a logical move in the
post Insolvency and Bankruptcy Code era. The honorable option for promoters is
to live another day rather than be labelled as defaulters and get shut out of
the capital markets.
-Mohan Sule
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