Sucheta Dalal :Institutional entrepreneurs (20 May 2002)
Sucheta Dalal

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Institutional entrepreneurs (20 May 2002)  

Now that the Development Financial Institutions (DFIs) are swamped with non-performing assets (NPAs) and are themselves acknowledged to have outlived their utility, they seem all set to turn into entrepreneurs. It probably started with Rajinder Steel, whose promoter dumped his companies and ran away after having amassed massive debts and rendered the projects completely unviable. The institutions then sacked Vinay Rai of the Usha group and set up a professional team to manage Malvika Steel, but they are stuck with the baby when their plan failed to work. Last week they moved to change the management of Spectrum Power Generation— something they ought to have done many years ago and without Supreme Court intervention. Will they manage Spectrum too? One also learns that institutions are set to takeover the assets of Daewoo, the South Korean car maker, which seems to have ditched its Indian operations. But all these pale into insignificance before Enron’s Dabhol Power Company where a whopping Rs 6,000 crore of institutional lending is at stake. With no solution to the DPC imbroglio in sight, it should be no surprise if FIs decide to run the company themselves—at least that way they protect their credit ratings and avoid classifying the loans as NPAs. This is clearly a very Indian way of turning the concept of professional management on its head. Unsurprisingly, nobody is willing to wager any money on whether institutions would turn out to be better as managers than lenders.


Last week, the National Stock Exchange’s (NSE) managing director Ravi Narain received the richly deserved Wharton-Infosys award for business transformation at Versailles. At about the same time, the last remaining blot on the NSE’s reputation—namely its shoddy website—also underwent a major transformation. Although the National Stock Exchange had comprehensively beaten the BSE in all departments, when it came to checking market information, it was the BSE website that was preferred by most investors. The Futures and Options segment was worse; users rated Yahoo Finance and even the discredited Home Trade above the National Stock Exchange. All that has changed. The NSE’s new website is a big improvement—the ticker moves fast and does not stall, and the site has clear and user-friendly access to various segments. Investors say: if only the National Stock Exchange would now have the courage to launch a 30 scrip index product to mirror the BSE’s more popular Sensex.


The Tatas bagged two major companies as a part of public sector disinvestment—CMC and VSNL. In case of CMC, the Tatas were forced to make an open-offer to retail investors at over Rs 100 more than their acquisition price, while in VSNL the open offer was at the same rate as their bid price. Yet, very few investors tendered their shares in CMC’s offer while in VSNL they received 1.5 times the number of shares that the Tatas are obliged to buy. The response says that investors were confident that the Tatas would turnaround CMC, but the telecom business is considered so complex and competitive that nobody believes that a Tata management alone is enough to deliver the goods. The Telecom minister should read the signals and realise why it is dangerous to weaken telecom companies by raiding their reserves and forcing them to invest in defaulting PSUs.

Tailpiece: A recent news report said that UTI planned to get out of companies it had promoted—presumably this included IL&FS, in which it is the largest shareholder. But even before UTI exits IL&FS, the latter has smartly wiped its portfolio clean of all investments in UTI’s troubled schemes.

-- Sucheta Dalal