In today’s newsletter, we’ll talk about how Videocon’s endless borrowing spree gave rise to the biggest corporate bankruptcy case in Indian banking history.

But let’s start from the beginning- back when Videocon was the king of consumer electronics in India.


The Glory Days

In 1986, three brothers started a company called Adhigam Trading, which sold paper tubes. They decided to diversify wildly. They began manufacturing TV sets and washing machines. In fact, they were the first Indian company to get a license to manufacture colour TVs. But they didn’t stop there.

By 1990, the company was adding products like air conditioners, refrigerators, and home entertainment systems to their offerings. In 1991, they rebranded to Videocon, which became one of the most iconic consumer electronics brands in the country.

But the brothers had bigger dreams.

They began exploring uncharted territories and set up businesses in Oil and Gas, Telecom, Retail and DTH services.

Unfortunately, these new businesses didn’t work out too well for them. They were capital intensive and didn’t generate a lot of money. But they had to borrow a lot of money to get these projects off the ground. And the firm’s debt began to spiral out of control.

Despite the new businesses now running in full steam, consumer durables were still the largest source of their revenue. And for a while, they were able to avoid competition by offering the lowest prices, but they failed to build brand loyalty, and companies like LG, Sony and Samsung quickly overtook them.

So the company’s revenues stagnated. Their debt pile became immovable. But the interest on debt was constantly rising.

They tried selling some of their assets and businesses to pay off their creditors. They merged their DTH services with Dish TV. They sold ownership in some of their gas fields. The telecom business went to Airtel. But none of it really made much of a dent.

And finally, Videocon was admitted to the bankruptcy court (NCLT) in 2018. The claims against the group’s companies, Videocon Industries and Videocon Telecommunications, added up to a whopping Rs 88,000 crore, making it India’s largest bankruptcy case ever.

And according to bankruptcy laws, their case should have been resolved within 270 days. But these things never happen on time, at least not in our country. If they did, we probably wouldn’t be discussing it more than a year later.

One big reason for the delay — Videocon group comprises of a lot of companies. 15 of them were undergoing individual insolvency proceedings. But the problem is, some of them didn’t take on the loans individually. They formed groups and told lenders, hey, we’re more creditworthy together so we want to take on this loan jointly. You have a guarantee from all of us.

But then they tried to resolve things with the same lenders individually. This resulted in some double counting of claims and a whole lot of confusion. So the lenders suggested that the Videocon group’s companies be consolidated for the purpose of resolution. And they called a stay on the process until they could sort this stuff out.

Meanwhile, lenders were concerned about something else. The group’s promoter, Mr Dhoot, was being investigated for corporate fraud in the Chanda Kochhar case. If you’re not aware of the details, here’s the short version.

Chanda Kochhar was the CEO of ICICI bank. She sanctioned a loan worth Rs 1875 Crores to Videocon. But a whistleblower complaint claimed that the loan had violated the bank’s lending policies, and the only reason Kochhar did it was because Dhoot had agreed to invest in her husband’s business in exchange. This led to criminal cases being launched against all three parties, which is still ongoing by the way. At this stage, any prosecution against Dhoot can impact the insolvency proceedings.

But that’s something the lenders will have to worry about later. Back to the proceedings at hand. In August 2019, the court passed a judgement to consolidate 13 Videocon companies, and try them together.

And so in the month of October, the Group’s lenders led by SBI tried to sell the group’s overseas oilfield assets. But Dhoot opposed it. His contention was that those assets belonged to Videocon’s overseas subsidiaries, and so could not be a part of the insolvency proceedings.

The court recently accepted Dhoot’s plea, and has restrained the lenders from selling the group’s overseas assets.

And so a resolution is still far away…

Bottom line — We just can’t wind up businesses in this country. Period!!!

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