In the end, the system does seem to work in India
Sometimes it feels like, wherever I go in the world, local businessmen have a story to tell me about one of their peers who has lost big money in India. This week, I have a story to tell them in return—one that may make everyone feel a bit better.
These hard-luck stories are particularly common in the sort of countries that are sitting on big, investible pools of capital—places like the United Arab Emirates, Scandinavia or Japan. In Dubai, they remember that the real estate company Emaar Properties PJSC ran into trouble in a joint venture with an Indian partner, and that their telecom company Etisalat had its license to operate in India taken away by the courts. In Norway, they mutter about the hundreds of millions that Telenor ASA sank into its ill-fated attempt to enter the Indian market and the problems it, too, faced in the courts and with its Indian partner. In Japan, NTT DoCoMo Inc. had to fight tooth and nail to recover the billion or so dollars it was owed by its own local partner, the Tatas; it finally got the money back late last year, after a three-year battle. And, of course, in Tokyo they’ll tell you about the Daiichi Sankyo Co. Ltd case.
Back in 2008, the Japanese pharmaceutical giant bought the jewel of India’s generic medicines industry, Ranbaxy Laboratories Ltd, from the billionaire brothers who had inherited it from their father and grandfather. The sale—greeted with moaning in the Indian press about “selling the family silver”—went sour almost immediately. Just a year later, one of the brothers—Malvinder Singh—quit as CEO. Disputes flared between the company and the US Food and Drug Administration, and evidence emerged that Ranbaxy had been systematically gaming tests and failing to meet health standards.
In 2013, the company settled with the Justice Department. It pled guilty to felony charges and had to shell out $500 million in fines. Daiichi Sankyo declared that information about the US investigations had been withheld from it when it bought the company and took the Singh brothers to arbitration in Singapore. A year later, the Japanese eventually washed their hands of the whole mess, selling for $3.2 billion the company for which it had paid $4.6 billion a few years earlier. Daiichi Sankyo had already, in 2009, recorded a $4 billion “non-cash valuation loss” on its purchase.
These are big numbers, and it was galling for most—especially those thinking of investing in India— to see that the Singh brothers had emerged from the fiasco unscathed. They took control of India’s largest hospital chain, their holdings in which they were poised to sell at a price that valued the new companies they ran at $2.9 billion. Few doubted that they bore a large part of the blame for the Ranbaxy disaster. But there seemed no way for them to be held accountable.
Even when the Singapore arbitration court declared last year that the Singh brothers should pay Daiichi Sankyo $385 million because they had concealed information about Ranbaxy, one remained doubtful that anything would happen. After all, India is notoriously sniffy about arbitration outside its own overburdened judicial system, and the Singh brothers seemed more than capable of persuading the Indian courts to ignore the Singapore judgment.
Last fortnight, however, came surprising news: The Delhi high court said that the brothers would have to pay up after all. They immediately resigned from their posts at their hospital chain, Fortis, and the company’s shares went up 24%. And now, Bloomberg has reported that the two brothers appear to have taken $78 million out of Fortis last year without board approval. Regulators are looking into the accusation.
And because karma—or Indian institutions—might take a while to catch up with you (but when it happens your bones are in danger of being ground exceedingly small), it turns out that the Singh brothers are also being sued by a New York investor who accuses them of siphoning off about $300 million from a financial-services firm they also control.
When I listen to glum foreign investors tell their horror stories about Indian partners who weren’t all they seemed, I get the sense that they simply don’t believe that there’s any accountability to be had in India. That the system is stacked against outsiders or the poorly connected. And there’s some truth to that: It’s a big reason why India doesn’t look like a great place to do business.
But I also try to argue that, given time, the Indian system can and does work, like it seems to be doing with the Singhs. This is the kind of strength that doing-business indices won’t always catch: the power of free courts and independent regulators, of an active media and powerful activists. As long as India has these, investors will keep on coming—regardless of the tales their predecessors have to tell. Bloomberg View
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