It was a business that once played a volumes game on thin margins for rapid expansion with enviable confidence, back in the 1990s. But it is for the speed of its diminishment that Videocon has drawn awe in recent times. Soon after Venugopal Dhoot’s overstretched group went bust in 2017, Videocon Industries was hit by an exposé of murky loans taken from ICICI Bank, a scandal involving a mispriced equity deal between the borrower and spouse of the lender’s chief in alleged lieu of loan approvals. Today, suspicions swirl around the price at which Videocon’s 13 group companies were being hawked after the group underwent bankruptcy proceedings. The would-be buyer was Twin Star Technologies, a part of Anil Agarwal’s London-based Vedanta Group, once known for its ability to salvage rundown factories, which got a nod from the National Company Law Tribunal this June to acquire Videocon for ₹2,962 crore, a sum described as “almost nothing” by the bench. On Monday, the appellate tribunal stayed the sale—on appeals filed by dissenting creditors IFCI and Bank of Maharashtra, both of which had objections to the approved deal’s contours. This episode has revived questions of how well our bankruptcy code works in selling off firms that go out of business.
Under this code, a panel of an insolvent firm’s unpaid creditors must take charge of its fate. Lenders accounting for the bulk of Videocon’s dues opted not to press for liquidation of its assets to recover what little they could, but for a resolution plan proposed by Twin Star, a buyout that would give them a bit over 4% of what they were finally owed. This implied a huge haircut for banks, with more than 95 paise on every rupee to be written off on their exposure of ₹64,838 crore, the total of their claims admitted under the process. State Bank of India had the most at stake, with close to ₹11,000 crore due. Twin Star’s offer was still higher than what the group was found to be worth as scrap. But one hitch, as the dissenting duo saw it, was that it was a convoluted transaction. Very little was offered upfront, and an overwhelming portion of the money would be paid in the form of debentures. It was not this elongated schedule of value realization that pushed the deal into a grey zone, however, as much as the oddness of Twin Star’s bid being only slightly above its reported liquidation value of ₹2,568 crore, an estimate that had to be kept confidential. Had it leaked? And how good was that valuation in the first place?
Leaks of that sort can warp post-bankruptcy price discovery in any sale scenario of scarce bidders. In Videocon’s case, it isn’t easy to work out what it’s currently worth because it had such diverse interests, including hydrocarbon assets overseas. When all of it could be monetized, and for how much, would call for calculations made with some degree of speculation. But then, that’s exactly why the deal may deserve a closer look. Generally speaking, while the broader purpose of our insolvency law was to allow for a swift shuffle of assets into more capable hands, rather than to simply let banks claw back their dues, it must not end up as a money-spinner for buyers with insider tip-offs. The code was enacted only in 2016. Since then, resolutions under it had logged recoveries of ₹2.45 trillion till 30 June. This may sound impressive. But for our bankruptcy code to aid India’s economic efficiency, as originally envisaged, the integrity of how it shifts ownership must not get compromised.
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