Sucheta Dalal :Babes in wonderland (18 February 2002)
Sucheta Dalal

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Babes in wonderland (18 February 2002)  

The US government’s aggressive lobbying for Enron deal and its recent efforts to secure a lucrative exit for the discredited power company are already well documented by the Indian media. US governments have never made any bones about promoting their business interests abroad. And even if the Enron burnout suggests that politicians are motivated by campaign funding rather than national interest, it will still not change the way US deals with the world. US Ambassador, Robert Blackwill continues to push Enron’s case until his “incessant lobbying for Enron has begun to grate on the nerves of the government”. Finance minister Yashwant Sinha is reported to have ‘strongly rebutted’ the ambassador’s charge that India had not been fair to Enron. Is this an indication that India is willing to be more aggressive in protecting its commercial interests? If yes, which interests will it protect? Indian politicians have always been happy to tailor policy to suit their largest political financiers. They have pressured banks and financial institutions to fund them; they have ordered public sector undertakings under their charge to hand over lucrative contracts to favoured businessmen and even bankrupted utilities by arm-twisting them into permitting corporate houses to build up unsustainable arrears. If Mr Sinha’s new aggression signals a change in attitude, then the Iridium case provides an ideal case for pursuing national interest to recover money from Motorola. As this paper reported, nine Indian institutions that had invested in Iridium India Telecom have filed a criminal complaint against Motorola, the main promoter of Iridium LLC. Iridium LLC was an ambitious global satellite communication project born out of the Star Wars programme. It envisaged a constellation of 66 satellites girdling the globe to provide seamless communication anywhere on earth. Indian institutions invested $ 70 million for a five per cent stake in Iridium LLC and a further Rs 126.09 crore in the Iridium gateway at Pune. It was India’s largest foreign investment and the investors were IDBI, State Bank, ICICI, HDFC, LIC, UTI, GIC and its subsidiaries, IL&FS and EXIM Bank. Videsh Sanchar Nigam Ltd had also invested Rs 50 crore in the gateway.

These institutions, like many others in Iridium’s consortium of global investors, have accused Motorola of fraud and claimed that it induced them to invest in the project through false statements and suppressing material facts. They also allege that although the project went bankrupt, Motorola emerged as the sole beneficiary. It has already pocketed a hefty $ 6.5 billion from Iridium LLC for equipment supply and other services ‘at artificially high prices’, while its own investment was a mere $ 315 million. To add insult to injury, the $ 5 billion project, which was sold to the Collusy Group in March 2001 for a paltry $ 25 million after the bankruptcy filing, is now doing fairly well. It operates out of a single gateway and relies heavily on a $ 72 million contract with the US Department of Defence. The irony is that it fired up five new satellites last week that were all planned and paid for by Iridium LLC and were part of the assets transferred to the new owner. After Motorola, the US Department of Defence, which originated the project, is the other beneficiary. It has managed to get a consortium of global companies to pay for the system and still keep them out of the final project.

So far, Motorola has ignored the Pune complaint (filed against the company, its chairman and board of directors) saying that proper summons have not been served. After all, this is just one of several lawsuits already filed in the US. Motorola maintains its standard claim that “the legal complaint filed by the former Iridium gateway company is without merit and is wholly disingenuous in its claims”. Scott Wyman, Motorola’s spokesperson told us “the people who invested in Iridium LLC were very sophisticated investors” who “knew full well they were investing in a new, bold innovative technology and space communications program”. That still does not absolve Motorola from charges of falsifying facts, suppressing information, failure to disclose technical problems and exaggerating viability prospects. Or that Motorola, having sponsored Iridium, had reduced its liability by discharging various guarantees given on its behalf. In fact, Chase Manhattan Bank and others have already won a case in the US federal court leading to Motorola being ordered to pay $ 300 million plus nine per cent compounded interest ($65 million) to the bankers. They had charged that Motorola had misled them into releasing its guarantee of their $ 800 million loan to Iridium. Other US litigants say that the Chase Manhattan victory is “just the first domino”.

Although Motorola intends to fight the judgements, it is obviously in for tough times. Also, if Motorola is forced to fork out large sums of money or plans to enter into a settlement with various investors’, then Indian institutions ought to be in the queue of hopefuls. Motorola may settle if its future business interests are threatened. These are not exactly insignificant; its equipment sales in India were $ 115 million last year and the buyers included Bharat Sanchar Nigam Ltd, defence services and the police. More than 40 per cent of GSM subscribers in India operate on Motorola cellular networks. Curiously, Indian investors seem rather nonchalant about the litigation.

A source close to the initial deal says that some view the loss as just another non-performing asset in a bad loan portfolio running into several thousand crore of rupees. Another source says that as with Enron, the institutions went into the deal like “babes in wonderland”—their due diligence was inadequate and they were completely overawed by Motorola’s slick presentation. It is even alleged that certain powerful bureaucrats were responsible for pushing the deal and brushing aside objections and issues raised by the Department of Science and Indian Space Research Organisation. Although the government ought to help institutions recover their money by playing on Motorola’s equipment supplies to government undertakings and the security forces; it should also make institutional chiefs personally accountable for deals signed during their tenure. Otherwise, many more Enron’s and Iridium’s will continue to bloom with the hapless taxpayer paying the price.

-- Sucheta Dalal