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Photo: Mint

Opinion | The code that recoded biz relationship in 2018

The Insolvency and Bankruptcy Code put Indian companies on tenterhooks

2018 really proved to be a seminal year for dealmaking in India. It was the year when the tally for deals crossed the $100 billion- a never achieved milestone surpassing all previous records. What also stood out was the fact that the Indian M&A, for the first time in a decade gave China a run for its money in attracting foreign investment. The two countries were neck and neck on inbound M&A, where China attracted $41.6 billionagainst India’s $40.6 billion, said a Financial Times report citing data from Refinitiv.

So what really changed? Largely, three large factors contributed to the surge in dealmaking - first, a shift in the outlook from a poor- undeveloped economy to that of a rising middle class that has started to generate and spend disposable income. This gave us many firsts- a mega deal like Walmart’s acquisition of Flipkart - or legendary investor Warren Buffett’s company Berkshire Hathaway investing $300 million in Paytm. Second was the huge dry powder which private equity firms are sitting on which prompted the rise of buyout deals.

What really proved to be the gamechanger, though, was the Insolvency and the Bankruptcy Code - a law that put Indian corporates on tenterhooks. Simply put, it said that either pay up your debts to the banks in a stipulated time frame or get ready to be liquidated or acquired.

This set the alarm bells ringing with almost every debt-stricken company trying its hand at debt restructuring or an internal restructuring or putting up its distressed assets on sale for potential buyers. India’s crème-de-la-crème could no more walk away from their debts without facing any consequences. This triggered a fear among promoters of losing control of their firms, and of being banned from bidding for other distressed assets. Even though IBC continues to evolve, it has already lend itself to various labels - a “game-changer", a “ very- deep, transformational reform" or a “landmark reform in the corporate history of India." But for me, this code was one which actually recoded the business relationships in India. From a distance, India Inc. has always given this picture of camaraderie, but IBC, a once-in-a lifetime opportunity for gaining strength via consolidation unleashed animal spirits—be it indulging in mud-slinging, outdoing each other via bids, or pursuing a back-door entry or even challenging the law in some cases in pursuit of the asset. About a third of domestic M&A in terms of volume and value came from such cases.

Nothing else mattered in the pursuit of that ambition. First the ugly stuff where mudslinging happened in public. Sample this : ArcelorMittal, which lost the bidding race for assets of Monnet Ispat, took to a public platform like twitter to take on JSW. “Interesting what decision is being taken on Monnet today given it’s clear JSW runs afoul of 29A as they are related to the existing promoter….who is making the mockery here?" said a post by ArcelorMittal on Twitter, taking a direct jibe at the JSW group chairman Sajjan Jindal who was also tagged in the post. This was essentially in retaliation to the word “mockery" first used by Jindal while indirectly referring to ArcelorMittal’s exit from bankrupted Uttam Galva to make its bid for Essar Steel assets eligible. “If a defaulting promoter tries to cure himself by selling his shares then that is a mockery of the law," Jindal had said then. The court rooms saw hightened drama too. According to Mint report, ArcelorMittal dug up the past of its rival bidder Vedanta Ltd, including the sensitive Thoothukudi plant issue, in a bid to present its case for the takeover of Essar Steel Ltd.

Some even resorted to even upend the law and gain back-door entry as in the case of Binani Cements which pitted Aditya Birla’s Group’s UltraTech Cement and the Piramal Group’s led consortium against each other. After UltraTech’s bid of 6,500 crore for Binani Cement’s assets under the insolvency process was rejected as it fell short of a 6,750 crore competing bid, it decided to approach the promoters of Binani Cement directly.

Now the bad stuff. Promoters losing control of their businesses was vehemently resisted. While promoters of Bhushan Steel moved seeking a stay on the takeover by Tata Steel, the promoters of Essar suddenly announced that they would pay up a massive Rs54,389 crore to settle all its dues in order to retain control over the steel giant.

But some good stuff also happened. Elder brother Mukesh Ambani bailed out younger brother Anil Ambani by buying out the wireless assets of RCom- saddled with Rs45,000 crore of loans.

As we go ahead, more and more business relationships will get redefined with IBC. The key question remains if this dealmaking momentum will continue? There is atleast a 1 trillion opportunity just for new NCLT cases. A hugely deleveraged balance sheet of corporate India will also throw up M&A opportunities as seen with deals like sale of steel business of Usha Martin to Tata Steel. India’s consumer story will continue to be investor’s magnet. This column has earlier pointed out that the real testimony for startups will be when annuity seeking pension funds also start investing in these high growth companies. Some of which is already being seen with the likes of CPPIB investing in Byju’s. Meanwhile, if you are looking at what will redefines businesses in India, take a crack at the code!

Shrija Agrawal is Mint’s associate editor. Due Diligence will run every week and cover issues in India’s venture capital, private equity and deals space.

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