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Mumbai: Ishaat Hussain took over as finance director of Tata Sons Ltd, the main holding company for the 96 firms in the group, in July 2000. He is a veteran in managing finances for the group, and is a director on the boards of several Tata companies.

In an interview with Mint, Hussain spoke about the impact of the global economic crisis on India and its companies, predicting that it would constrain private flows of capital, particularly debt capital. He called for the recapitalization of multilateral agencies such as the World Bank to deal with the fallout.

Hussain was, however, confident that Tata group companies would ride out the economic downturn, citing their “inherent strength". He said regulators and the media were overreacting to promoters pledging shares after the scandal at Satyam Computer Services Ltd. “Everybody cannot be treated like Satyam," Hussain said. Edited excerpts.

What are the new businesses the group expects could become big in the future?

Veteran talk: A file photo of Ishaat Hussain, finance director, Tata Sons. Hussain says the global slowdown has been caused primarily by a total mismanagement of liquidity on the part of CFOs. Santosh Verma / Bloomberg

We are in the middle of a financial crisis. Being director of finance in the Tata group, you are on the hot seat. You not only have to apportion funds for each of your businesses, but you also have to raise it in these times of a liquidity crunch. Do you have a crisis management team?

We don’t have a crisis management team... We all have to readjust from a heady growth. We were cruising at tremendous speed and suddenly, all of us were hit by turbulence. So, we have to quickly move from auto-pilot to taking control of the wheels.

We are proactively managing the situation. The challenge is to be proactive rather than reactive.

This is a generic issue with everybody. And the way we work is that all action resides in the company (not in the holding company Tata Sons). Please understand that all the major companies are independently quoted companies on the stock exchange, with independent boards. And each board will have to address the issues with the management of those companies. Yes, most of the companies have representatives from the centre (Tata Sons). But the action is in the companies. So, we are not a monolithic thing.

What are the challenges before a chief financial officer (CFO) these days?

The role of the CFO is to primarily manage the liquidity of his/her organization. That is the primary goal. But CFOs today aspire to do the sexier stuff such as investor relations, talking up the stock price and strategy... I blame CFOs for this financial crisis which the world is going through now. Where were they and what were they doing? Why didn’t they manage the liquidity? People can say it isn’t a solvency issue, but a liquidity issue. What is striking me as a bit odd today is that we had 10 years of boom and two quarters of bust and all of us are shaking. Therefore, it has been a total mismanagement of liquidity.

What happened to the liquidity they created? Where did it all go? I am talking philosophically. I am not talking as a representative of the Tata group now.

Is it back to basics for CFOs?

Cash is always king. And cash has always been managed and, particularly in this scenario, cash has to be pulled out from every corner, from wherever possible. When I was a finance director at Tata Steel Ltd, every day at 3.30pm, I used to get the cash statement on my table... It was like the pulse—whether all’s well or not. By the feel of the cash with you, one could get a sense of the situation.

For example, I am the chairman of Tata Sky... I get a statement by 11am on how many subscribers we have. One thing I look at very very carefully: How’s my cash moving? My cash must grow month by month.

So, it shocks me what happened in Satyam. I cannot believe that a corporation such as Satyam could have such a big hole. Cash is very important. The minute the trend is lagging, I get in touch with the management. I say, “Boss, something is going wrong."

Is this what has been inculcated among the rest in the group?

I am not an exception. You talk to any sensible CFO, everybody manages cash. It is a question of degree. I lay much more emphasis (on cash) than many others. Others would look at the big picture of the monthly and the quarterly basis. And the other thing about liquidity management is you must have plan A, plan B and plan C. Always stress-test for the worst-case scenario. The worst thing to do is to wake up to a crisis. See the crisis before anybody else sees it. That is the role of the CFO. Business carries risk. Despite best efforts, one’s best judgement, one may still be overtaken by events... I am not saying one can completely negate a Black Swan event. But do your best to deal with it in advance.

The financial crisis came as a surprise to many. Was the group prepared for the crisis?

Talk to Gopal (R. Gopalakrishnan, executive director, Tata Sons). He has been very pessimistic for a long time. Some of us began to be pessimistic, but none could foresee this falling off the cliff. We all knew that it was getting very heady. If you look at the growth rate in the Indian context, inflation was beginning to rear its head. The Reserve Bank of India (RBI) was pulling out liquidity to rein in inflation. Obviously, there were headwinds. And clearly, there would be turbulence, but hitting such a bad patch was never foreseen.

How did you plan for the worst-case scenario? Did you have a plan B?

I’m not sure whether the worst case has still unfurled itself (laughs). But we had taken preventive measures. To share an experience with you. Tata Steel just went and built up liquidity because they realized that they had commitments. What we did foresee was (that) money would get very tight. Some of us, who had the opportunity, went and raised money and built up liquidity. I certainly did that in Tata Sons. I saw strong clouds and I said money is still available, we can’t take the risk to wait. So, my entire financing for 2009 I completed in May 2008.

So, even when we had Tata Motors Ltd’s rights issue, we (Tata Sons) were standing behind it. When it didn’t perform well, whatever devolved, we went out and subscribed. If we hadn’t taken that preemptive action then, we would have had some difficulty to subscribe to the unsubscribed portion. We had confidence that we were OK.

What are the lessons one learns from the current crisis?

I learnt from H.T. Parekh (founder of Housing Development Finance Corp.), who was an iconic figure in the financial world when I started my career. “Remember, you raise money not when you need it, you raise money when it is available." So, when the money is available, take it...you can always reinvest it.

Tell us about the road ahead in terms of managing liquidity in Tata Sons.

We are working at it. The sensible thing to do is to take it easy. Companies should do only what is necessary. We will be very cautious on fresh investments we make. The world is very scarce of capital. Therefore, capital has to be applied very carefully.

How are you going to manage the funding requirements for Tata Steel and Tata Motors for the overseas acquisitions they made?

Tata Sons did not make the acquisitions. The acquisitions were made by Tata Steel. Please address this question to Muthuraman (B. Muthuraman is managing director of Tata Steel).

But as a holding company, you’ll play a role.

We hold 33%... It is the board of Tata Steel that decided on the Corus acquisition. Of course, I was there on the board. We thought it was a good idea for Tata Steel to make that investment. We, as a shareholder, will support that investment. If you ask me how Tata Steel is managing this situation, I would hesitate to answer that because it is (up to) Koushik Chatterjee (Chatterjee is the group CFO of Tata Steel) and Muthuraman to answer any detailed questions.

But Tata Motors, we are told, is still trying to roll over the bridge loan into a long-term arrangement.

Tata Motors is working on that. They are looking at various options. They will come and tell us if they need some involvement from Tata Sons.

A couple of analysts’ reports have suggested that Tata Sons or Tata Capital could come to the rescue by taking over the assets and liabilities of Jaguar Land Rover?

I fell off my chair when I heard this talk. Let us for a moment say that this is a hypothesis that needs to be explored. What expertise do Tata Sons or Tata Capital have to run a car company? There would be all sorts of regulatory requirement... It is an absurd idea the way it is put to us by some mediapersons.

What are the challenges for the Indian companies which made acquisitions?

I can speak generically. The problem I foresee is that the world is going through an era of protectionism in which global capital flows on a non-multilateral basis will probably decline steeply.

Can you elaborate on this?

The first priority of some of the banks that have been nationalized in UK or in US will be to lend domestically. Being owned by the government, they will be severely constrained to manage their international operations. Therefore, a lot of divestment of global assets of nationalized banks will be seen in the coming days. The private flow of capital, particularly of debt capital, will be constrained. If an Indian industry has got used to credit as well as capital from foreign banks, I see that diminishing in the coming days. So, we have to work on the assumption that this window won’t be there.

It is very important for multilateral agencies to be reactivated and capitalized properly to deal with this new scenario. Recapitalize multilateral agencies like the World Bank and the International Finance Corporation. I found it more useful to talk to multilateral agencies than talking to private investment banks.

And Indian industry has taken a fair amount of foreign currency borrowings. We should start planning, not merely at the company level, but I am quite sure this must be thought of at RBI and finance ministry levels. Corporate debt has to be repaid. Fortunately, we still have an 18-month horizon, so that planning must start. In other words, we have to look much more to domestic sources.

So, the problem of Indian companies raising capital will become more acute in the coming days?

That problem is being faced today maybe—not by corporations like us. The Tata Capital issue was oversubscribed six times on the basis of the brand and interest.

Whenever Crisil Ltd rated Tata Sons’ debt instruments, they mentioned the huge comfort accruing from Tata Consultancy Services Ltd. You mentioned that you have raised debt last year. What would be the debt-equity ratio for the main holding firm?

It would be two of equity and one of debt. Net debt would be better.

What would be your message to Tata group shareholders?

We are dealing with an unprecedented global crisis. To use a cliché, it started from Wall Street and now has come to Main Street. I would say that assess our companies on our intrinsic strength. That has not changed. You take TCS—it still has scale. It has 110,000 employees. It has a good delivery mechanism, product quality is good. Now look at Tata Steel—the India end continues to be the lowest producer of steel. I reckon that the problems in Europe, which are severe, will be overcome, and when the dust settles, it will be a good business again with a very strong Indian arm. The fact that Tata Motors has the capability to produce the Nano is worth a lot. Let alone the shareholder, it means a lot to India. It has huge engineering capability. I’ve no doubt that once there is recovery, Tata Motors will be back on its feet; it will be able to deal with the issues of JLR, if they fail to resolve (them) themselves.

One relies on the judgement of the management that has looked at the product offerings in JLR. They were doing extremely well before this bloody bottom fell off.

What about Tata Teleservices Ltd (TTSL)?

TTSL—we are disappointed, but there is so much regulatory arbitrage in the sector that we have not been able to really exploit it. (I) am very confident that (with) NTT Docomo Inc. coming in, it will begin to do well. We have put in a lot of money in TTSL and I’ll be the first one to admit that Tata Sons is not a bottomless pit (NTT DoCoMo of Japan plans to acquire 27.31% of Tata Teleservices Ltd and buy as much as 20.25% of its unit Tata Teleservices Maharashtra Ltd).

Warren Buffett’s Berkshire Hathaway Inc. is listed. Will Tata Sons also get listed?

Tell me, suppose we were to list Tata Sons. I can analyse it for you. What is Tata Sons’ chunkiest investment? It is TCS—may not be in terms of cost, but in market capitalization. Huge value comes from Tata Steel, Tata Power Co. Ltd, Tata Chemicals Ltd, Tata Motors and Tata Tea Ltd. So, if you buy Tata Sons, you get 70% quoted and 30% unquoted companies. Why would you do that? If you like Tata Steel, you would buy Tata Steel from the market. If you like TCS, you’ll go and buy that in the market. Why do you want to route it through Tata Sons? It will make sense if we could merge all these companies and (be) like GE (General Electric Co.) model. But how does one run a company which has auto, steel, chemicals, financial services and telecom?

There were some eyebrows raised on Tata Sons pledging its shares.

When banks go to RBI to borrow, they have to give collateral. What is the collateral? It is government securities. So, (they) pledge government securities to borrow from RBI. If promoters go to a bank, we pledge shares. If I have to borrow, then what are the assets that Tata Sons has? We have stocks. Tata Steel and other manufacturing companies have assets such as land, plant and machinery. The only asset that Tata Sons holds is the shares they own. So, we pledge our shares. But we pledge our shares to invest in our group companies, not to get our daughters married. You have to get to the motivation of the promoters. I am pledging my shares to part-finance my investments. I don’t understand this concern.

There may be other people who have pledged shares to buy a house in the south of France. For all my borrowings, I get rated by Crisil at AAA rating for the borrowings.

On the basis of Satyam, this noise about pledging of shares (is being made). Everybody cannot be treated like Satyam. The regulators and the newspapers are overreacting.


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