In this edition, we talk about the India formulating better policy for bankruptcy defaulters and moving towards third biggest economy in 2027 with a $5.4-trillion GDP, Odisha government’s approval of latest steel project and more.
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“How did we go bankrupt? Two ways. Slowly, and then all of a sudden.” – Ernest Hemingway.
Few people would be able to explain the complicated causes of bankruptcy in as simple a manner as the great American novelist Ernest Hemingway.
Bankruptcy, while never a painless process, often becomes critical in modern-day society, particularly in the corporate world. A little more than six years ago, India took its biggest step in this regard when it implemented the Insolvency and Bankruptcy Code (IBC). Now, it’s going a big step further.
After the IBC came into effect, the immediate focus of the regulators and lenders was on the so-called Dirty Dozen — India’s 12 biggest corporate defaulters. These included companies such as Essar Steel and Bhushan Steel. The IBC saw some initial success. But delays, litigation and then the Covid-19 pandemic have tarred its record.
Of the 12, for instance, eight companies underwent the resolution process rather successfully and lenders have recovered a major portion of their debts. But the other four and a large number of other bankrupt companies are either heading for liquidation or are nowhere close to finding a buyer. Clearly, several kinks remain in India’s bankruptcy regime. And that’s why the Indian government is now looking to overhaul the IBC.
The government plans to make as many 40 changes to the IBC to bring more transparency and speed up the insolvency resolution process. A draft proposal in the works intends to give more power to the adjudicating authority and allows mandatory admission of insolvency applications filed by financial creditors.
The government also seeks a specialised framework for the real estate sector given the large number of projects stuck in big cities. A new mechanism for equitable distribution of proceeds among the creditors is also in the works.
Myriad other changes are proposed, but we won’t bore you with all of that mumbo jumbo here.
Suffice it to say that India could soon have a leaner, meaner, quicker and state-of-the-art bankruptcy law. And that can only be a good thing for India Inc as well as the economy as a whole.
Bridging the deficit
Even as the government tries to give the country a much better version of the bankruptcy law it currently has, there is some good news on the macroeconomic front.
Lead indicators from the Reserve Bank of India show that India’s current account deficit (CAD) is likely to reduce in 2023, while macroeconomic stability has received a boost as inflation is now within the official tolerance band.
“With the merchandise trade deficit reaching an all-time high of $83.5 billion in a quarter, and a rise in net outgo from the income account, the current account deficit increased to 4.4 per cent of GDP in Q2FY23,” the State of the Economy article in the RBI’s January 2023 bulletin showed. “It is noteworthy, however, that the CAD for Q1 was revised down from 2.8 per cent to 2.2 per cent on account of downward adjustment in Customs data,” the RBI said.
Why is this important, you ask? It is important as India remains an import-dependent economy and relies on the rest of the world for the bulk of its energy needs.
But there is more good news ahead if the central bank is to be believed. “At current prices and exchange rates, therefore, India will be a $3.7-trillion economy in 2023, maintaining its lead over the UK as the fifth-largest economy of the world. According to the IMF’s (International Monetary Fund’s) calculations, India will move into fourth place in 2025 and into the third place in 2027 as a $5.4-trillion economy,” the RBI said.
Ah then, it may be time to pop some bubbly we say! Three cheers to the Indian economy!
Mining for gains
Moving on corporate developments, billionaire Anil Agarwal of Vedanta is looking to reorganize his conglomerate.
The metals and mining major said this week that its board had approved the sale of its international zinc assets in South Africa and Namibia to subsidiary Hindustan Zinc Ltd for $2.98 billion in cash.
Vedanta said the transaction would be completed in a phased manner over 18 months. Following the transaction, THL Zinc, which is a unit of Vedanta, and holds the international zinc assets, will become a wholly-owned subsidiary of Hindustan Zinc.
This comes just a couple of months after reports said Vedanta was looking to exit the steel business barely four years after it had decided to make it big in the industry. Vedanta had been planning to sell Electrosteel and focus just on its core businesses, which are mining and industrial. Vedanta has reportedly approached other steel companies like Tata Steel, ArcelorMittal Nippon Steel, JSW and Jindal Steel and Power for the purpose.
But why is Vedanta doing this? Well, one of the reasons for Vedanta taking this decision is to deleverage its balance sheet, which had a debt of $11.7 billion at the end of March. Moreover, a transfer of the zinc assets under one entity – Hindustan Zinc – would bring more efficiency into its operations.
Steel it
Talking about steel, the Odisha government this week approved a $4.68-billion steel project to be built by a joint venture between billionaire Lakshmi Mittal’s ArcelorMittal SA and Japan’s Nippon Steel Corp.
ArcelorMittal Nippon Steel India, the JV, will build the plan that will have annual production capacity of 7 million tonnes, the Odisha government said.
Notably, the two companies had formed the JV to acquire debt-laden Essar Steel. After completing that acquisition through the bankruptcy process in late 2019, the JV has been expanding its business. Last year, it bought some ports and power and transmission assets from Essar Group for about $2.4 billion.
The Odisha project shows Mittal’s growing ambitions in the country. For Tata Steel and JSW Steel, currently India’s biggest steelmakers, that should be a warning sign.
Follow on, follow up
You can’t talk about billionaires without talking about the No. 1 billionaire in India—Gautam Adani. News reports said this week that Adani’s flagship Adani Enterprises Ltd, which is set to raise Rs 20,000 crore through a follow-on public offering, expects all its business verticals to achieve the scale for independent stock market listing between 2026 and 2029. These verticals include roads, airports, and data centres.
The follow-on offering will see the group invest Rs 10,869 crore for the capital expenditure requirements of its subsidiaries in green hydrogen projects, airport facilities and constructing a greenfield expressway. Besides, it will use Rs 4,165 crore to repay the debt of its road, airport and solar energy subsidiaries.
Adani Enterprises has set the floor price for the FPO at Rs 3,112 and fixed the cap at Rs 3,276 apiece. It will offer an additional discount of Rs 64 per share to retail investors.
Mutually beneficial?
The Securities and Exchange Board of India (SEBI) is investigating investments between Nippon India Mutual Fund and Yes Bank between 2016 and 2019 for suspected misuse of investor’s money, Reuters reported this week.
SEBI is probing whether the mutual fund invested Yes Bank’s perpetual bonds as part of a deal whereby the private- sector lender invested in securities of Anil Ambani group companies, the report said.
The development is significant, and worrying, for several reasons. Nippon MF is the largest foreign-owned fund house in India. At the time the alleged investments were made, the fund house was owned by Anil Ambani’s group. Japan’s Nippon acquired a majority stake in Reliance Asset Management Company in October 2019 to become the owner of the mutual fund.
Meanwhile, Yes Bank was taken over by the Reserve Bank of India in early 2020 and sold to a group of banks led by State Bank of India after its bad loans soared.
This is the at least the third major controversy surrounding the mutual fund industry in India. In April 2020, Franklin Templeton Mutual Fund shocked investors when it abruptly decided to wind up six debt schemes after facing huge redemption pressure following the spread of the pandemic.
Last year, Axis MF was rocked by a scandal as SEBI began a probe into allegations of front-running by a couple of the fund house’s executives. Axis MF sacked the two employees, including its chief dealer, in May last year and later said the executives had violated India’s securities law.
Market Wrap
Both the benchmark indices—the 30-share Sensex and the 50-stock Nifty—ended the week firmly in the green, up about 0.8% and 0.6%, respectively.
The Nifty stocks that ended the week in the green were Coal India, Vedanta, Larsen and Toubro, Tech Mahindra and HCL Technologies. Some others that followed these counters included Power Grid Corp, Tata Steel, the HDFC twins (HDFC and HDFC Bank) as well as ONGC, UPL, Infosys and Wipro.
The stocks that ended the week in the red were Asian Paints, Indiabulls Housing, Bajaj Finserv, Titan and JSW Steel. Others that lost ground this week were Adani Ports, Zee Entertainment, Tata Motors, Kotak Mahindra Bank, Axis Bank and Reliance.
Other headlines
- Tata Motors seeks around $600 million for electric vehicles business
- GoMechanic admits to fraud, lays off 70% of its staff
- Sun Pharma to acquire US firm Concert for $576 million
- NCLT admits insolvency plea against Rolta India
- Swiggy lays off 380 employees, CEO says company overhired
- Air India’s mega jet deal with Airbus, Boeing held up by engine-cost debate
- India Post Payments Bank looks set to break even in FY23, says CEO
- General Motors India laid off workers sue company’s global CEO
Until next week, happy investing!
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