It is Not Just Mallya and Modi

The news of Nirav Modi’s flight from the country has caught everybody’s attention. Primetime news began its finger pointing as soon as the news broke. The issue may eventually get blown over and forgotten like the Vijay Mallya issue. It has been reported that the monetary value of fraud on the Indian banking system is a little over 61,000 crores. There is definitely a rot in the banking system driven by forms of crony capitalism dating back to the early years of the ‘liberalisation’ of the Indian economy. One such example is of the Essar Group. The Ruia family who are the promoters of this conglomerate have featured in the news on several rather regular intervals for all the wrong reasons. Sucheta Dalal has covered their wheeling and dealing with various governments.

The pattern that emerges from reading the various articles written regarding the Essar Group is that the Group follows a predictable method. The company will issue public shares, amass debt, then delist the shares at a rate lower than which they were issued and oftentimes lower than the market value of the shares. One prime example is of Essar Steel, who had offered its investors a rate of Rs. 48 per share despite the share price having reached Rs. 78 on the open market. This means that per individual share a profit of around 38% was made by the company. Then in 2002, some firms of Essar Group sued other firms of the Essar Group for defaulting in their payment of dues under the consent terms. This was a cover to divert the attention from the amounts owed by the Essar Group to GTB.

What actually blew the lid off on this modus operandi were the Essar Diaries in 2015. The Centre for Public Interest Litigation had filed an affidavit in the Supreme Court and among its annexures were the ‘Essar Diaries’. The diaries revealed that the details of the Union Budget were available to the Essar Group in 2012 before the Budget had been presented in Parliament. The diaries also revealed that pricing and tax policies of the Petroleum and Natural Gas Ministry then headed by Veerappa Moily were influenced by them. Essentially having a foot in the door to two consecutive governments. Then there was the infamous 2G Scam in which the Essar Group was involved in grabbing spectrum through subsidiary firms and then selling shares in these firms which had no marketable assets or returns other than the spectrum licenses. This was enabled by the compliance of the then Minister for Communication and Information Technology, A. Raja.

At present ArcelorMittal has submitted a bid for Essar Steel. Mittal however, faces competition from Numetal a company in which the Ruia family owns a stake. The person who will be negotiating on behalf of Numetal will be Rewant Ruia, the son of Ravi Ruia the head of the Essar Group. Though Indian bankruptcy law prohibits any person associated with a defaulting entity from submitting bids, Rewant Ruia has not been associated with Essar Steel. If there is any reason for the regulatory authorities to throw off the corporate veil, this is one. The current debt that Essar Steel is laden with stands at a little over 49,000 crores. The liquidation value of Essar Steel is 20,000 crores, meaning that if the company were to go for liquidation their creditors would be short 29,000 crores. The Numetal bid is for 35,000 crores, 14,000 crores less than their outstanding debt. Among the creditors, SBI is the largest with a stake of over 13,000 crores, followed by IDBI Bank with 4,739 crores, Canara Bank (3,798 crores), and ICICI Bank (2,481 crores).

The current value of NPAs in India is over 8.5 lakh crores. Essar Steel’s contribution alone is around 49,000 crores, the known or highlighted value of fraud is around 61,000 crores. Add to it the other infamous defaulters and the reason for these NPAs should be clear to anybody.