Now that the steel industry’s massive borrowings are threatening to kill the very financial institutions that supported their mindless expansion and diversification both borrowers and lenders are desperately seeking drastic solutions. One such proposal was to merge all steel companies, disassociate them from existing management, and place them under independent professional management. That idea sank like a stone soon after it was proposed because industrialists are unwilling to give up control. Plan B was to create a cartel like the cement industry; but industrialists in the steel sector cannot seem to put aside their rivalry and come together for a common cause which is to cut production and hike prices. Also, no cartel can work without Tisco being part of it, and the Tata company has so far refused to bite. The industrialists are now asking beleaguered financial institutions to persuade Tisco to join in. An array of facts and international examples are being trotted out to justify the cartel they even claim it is in national interest.
Also, Tisco’s huge fall in profits is also expected to act as a strong motivator. But even if Tisco bites, there are other issues. For instance, the big steel producers are willing to cut production by just 10-12 per cent, while others say that the cartel will have an impact only if production is cut by a hefty 30-35 per cent. Will the steel companies finally form a cartel, and will the user industry quietly pay more? Watch this space.
Cutting to size
The Reliance Group has been doing a reality check and walking out of its many new and non-linear diversification. In a drastic decision, the big business house has shut down Reliance Entertainment, which was to mark a big entry into entertainment software and infrastructure. As a part of the shutdown it stands to lose Rs 1 crore for abandoning the entertainment centre project at the Bandra-Kurla complex in Mumbai, which it had bagged by outbidding the Zee group. Similarly, it has decided to freeze further investment in Reliance Infocom, which was until recent times the nerve centre of group’s business activity. It is reliably learnt that Reliance’s plans to raise $500 million through an ADR issue have also taken a knocking.
According to sources, a pre-road show assessment showed that global investors find the shares over-valued and were only willing to pick up stock at a hefty discount to market. According to sources, Reliance seems to have shelved its GDR plans until September, when it will assess market conditions again.
Race for the top
The financial grapevine has it that the race for the chairmanship of Industrial Development Bank of India (IDBI) had all but been clinched by dark horse PP Vora who is currently chairman and managing director of National Housing Bank. The finance ministry, it is learnt, had cleared the appointment, but all of a sudden, SK Kapur was told takeover after making him whole time director. In fact, Kapur is more powerful than his predecessor SK Chakrabarti who was also acting chief. Kapur, say sources, heads three powerful internal committees of IDBI, which together control most decisions. Nobody is quite clear who scuttled Vora’s appointment, but everybody believes that it had to do with powerful political machination. No wonder Sanjay Nirupam had to apologise for his references to the Prime Minister’s Office in Parliament after all nobody—not even the Opposition really wants things to change.
With the Joint Parliamentary Committee (JPC) and the Central Bureau of Investigation (CBI) on the rampage, even the regulators are busy working out survival strategies. One regulator, more nervous than the rest is busy meeting all the JPC members and has also been asking former colleagues to speak to top CBI officials on his behalf.
What takes the cake however is a blunt six-page note, of which we have a copy, which says what he should do. The instructions ask him to get rid of senior staff, destroy old records and dormant files that are not required and do a clean up operation to clear all pending files. It asks the regulator to become ‘strict’ not to meet people indiscriminately, to see that ‘all corpses should be buried properly’ and the ‘entire operation cleaned up’ so that the organisation looks non-corrupt in the coming one year. All this is liberally interspersed with some cockamamie advice on the world economy and capital markets as well as sage advice on ‘eradicating’ corruption at stock exchanges. It suggests that ‘one or two people should be raided and penalised so that the fear (sic) is created in the eyes of stock exchange authorities and people in power’.
The goal: to help the regulator stay out of trouble and to seek another extension or at the very least a diplomatic posting.