On the mechanics of Gautam Adani’s extraordinary expansion across India

For a long while now — ever since my colleagues at Economic Times and I profiled Gautam Adani in 2013 — some of my friends and I have been wondering how the Adani Group funds its growth. Is there a mismatch between the quantum of its balance sheet and the quantum of its investments?

That question resurfaced late last year while reporting on India’s insolvency proceedings. As Scroll.in reported at the time, the Adani Group was one of the biggest buyers of stranded assets. These purchases, notably, were a part of a larger burst of growth which has seen the group rapidly expand across India. Not only have its existing businesses continued to grow, the group has also expanded into several new businesses. As we noted, with some head-scratching, one of those new businesses was sewage treatment under the aegis of the Namami Gange programme. Others included data centres, defense and more.

A couple of months ago, as my stint at Scroll.in began drawing to a close, my colleagues and I took a closer look at this question. Our first report described the company’s expansion — and contrasted that with the group’s balance sheet. The second report, published a day later, took a deeper look. Here is what we found.

Not only does the group raise money from overseas, it also raises a lot of money within India – in the form of bank loans, borrowing against shares and pledging assets. This money circulates within the group through a high-density of related party transactions. Adani Group subsidiaries borrow money by offering the shares they hold in listed group companies as security. Sometimes, they use these borrowings to purchase equity in sister companies – even those in unrelated businesses. Or they lend this money to group companies. Step-down subsidiaries – or the subsidiaries of group companies – pledge assets and raise money, which is then loaned or invested in group companies.

Put together, these patterns tell me how companies close to power grow — they gamble on growth, scrambling to become as large as they can while favourable conditions last. Working on this story, I think I also deepened my understanding re the risks such firms run — this extends beyond on the trope of political risk; chasing growth, these companies take risky bets, partly due to their own unique compulsions, and partly because they figure the policy environment can be used to push even unviable projects into viability. This raises questions on whether the projected cash flows will fructify, especially if the favourable conditions changes.

Such groups also engender complex outcomes for an economy. An infrastructure consultant I spoke to in Delhi was sanguine, seeking Adani’s rise as another point in a very familiar trajectory of economic growth. Every economic era, he said, has been dominated by a few companies which had proximity to power, access to capital and technical expertise. “In the US and Russia, abuse of power by large corporation is far bigger than what you see in India,” he said. “As long as good assets are created, efficiently run and capital pulled in from the world over and put to use in India, I welcome it.”

But it’s not that simple. Because of its connections to power and finance, a dominant player might indeed be able to build infrastructure, Michael Walton, a senior professor in public policy at Harvard’s Kennedy School of Governance, emailed. “In an economy that is a hybrid of rules and deals, with major infrastructure backlogs, this may bring real social and economic benefits,” he said.

However, he added, such companies also comes with costs. “On the economic side, a dominant player is highly likely to use their monopoly power to extract rents, to build at high cost and close down competition.” Indeed, the growth of Adani ports has been accompanied by complaints that the government is weakening state-owned ports like Kandla and Paradeep.

There are also political costs, said Walton, who is currently studying Latin America’s Odebrecht. “Such dominance can distort politics, though legal or illegal electoral finance, and directly and indirectly public deliberation over policies.”

The fallout is a market loaded against less politically-connected companies. After all, such firms can take bets other companies cannot. Such an instance comes from Adani Power (Mundra). Even as other companies put their power projects on sale, the Adani group doubled down and kept infusing cash into Mundra. In tandem, as Scroll.in reported this March, the group tried to get approval to pass higher coal prices to end customers — and eventually prevailed after the Bharatiya Janata Party governments in Gujarat and the centre stepped in.

The fallout is also a vulnerable economy. Given huge amount of borrowings, if the projected cash flows do not materialise, lending sectors will get affected too. At the same time, if the group in question is a monolith lording over most of the public utility space in infrastructure, consequences of it landing in trouble are likely to radiate outwards and touch other parts of the economy as well.

All of which makes me wonder what the coming months will hold — especially with the slowing economy.

ps: And yes, that is it. The Scroll stint is over. I reached Mizoram in the third week of February, 2015. Worked on Ear To The Ground till November, 2017. And worked again on the central government from 15 August, 2018 till now. It has been a good run. I have learnt a lot. Made a lot of new friends. Lost some illusions about the country and several about myself. The plan is to now switch off for a bit, finish writing a book, and get back to cycling.

How a legal loophole allows BJP MP Rajeev Chandrasekhar to hide his full wealth from election panel

On March 12, 2018, as a part of his Rajya Sabha application as a Bharatiya Janata Party candidate, Rajeev Chandrasekhar submitted an intriguing affidavit listing his assets and sources of wealth to the Election Commission. The affidavit, a mandatory requirement for electoral aspirants, pegged the businessman-turned-politician’s annual income at Rs 28 crore and valued his family assets at Rs 65 crore.

According to the affidavit, Chandrasekhar held equity shares in six unlisted companies: Vectra Consultancy Services, SPL Infotech PTE, Jupiter Global Infrastructure, Minsk Developers, RC Stocks & Securities and Sanguine New Media.

Missing from the affidavit, however, was Jupiter Capital, the largest company controlled by Chandrasekhar.

Described on its website as an investment and financial services firm, it was set up by Chandrasekhar in 2005. In its first year, the company had four subsidiaries and an income of Rs 15.08 crore. Since then, it has grown rapidly. The company’s 2018 filings with the Ministry of Corporate Affairs report 58 subsidiaries – among them, media companies like Suvarna News, Asianet, Indigo 91.9 FM and Republic; technology firm Axiscades and defence firm Indian Aero Ventures.

Spanning technology, aerospace, media, music, entertainment, hospitality and infrastructure, Jupiter Capital’s subsidaries account for most of Chandrasekhar’s business activities and earnings. The company manages, as its website says, a portfolio of investments estimated at over $1 billion (Rs 7,100 crore). In March, 2018, it reported a consolidated gross income of Rs 1,026 crore.

In contrast, the companies listed by Chandrasekhar in his affidavit are much smaller.

And therein lies a tale. Do read.

More on the asymmetry that rules India’s business insolvency process

Since October last year, Scroll has been (intermittently) reporting on how India’s insolvency proceedings are coming along. Cumulatively, these reports flag a couple of peculiar patterns.

A lot of companies are up for sale — In a country with 7500 companies with a topline over Rs 250 crore, 2511 companies are slated for insolvency proceedings. There are very few buyers. Ergo, companies are changing hands at very low rates, creating in effect a giant fire-sale of Indian companies. This asymmetry between buyers and sellers is interesting. Even as most debt-saddled companies find themselves in insolvency courts, others (a very small set) continue on an acquisition spree.

An example here is Adani Enterprises. One of the most debt-saddled companies in the country, it continues to acquire companies and announce new projects with gusto. One answer why lies in today’s report.

Do please take a look.

Five reasons why claims by forest dwellers for their land are low – and rejections are high

On February 13, the Supreme Court ordered the eviction of more than 10 lakh families of Adivasis and other forest-dwellers from forestlands across 16 states. The order came while the court was hearing petitions challenging the constitutional validity of the Forest Rights Act, 2006. The petitioners had demanded that state governments evict those forest dwellers whose claims over traditional forestlands under the landmark law had been rejected.

…In the days since the ruling, tribal activists have denounced the order while some conservationists and bureaucrats in the forest service have welcomed it. A key part of their defence? According to the judgement, a total of 18.8 lakh titles have been granted under the Forest Rights Act, while 19 lakh claims have been rejected. In a statement released on Thursday, Wildlife First said all 19 lakh rejected claims were bogus. It said: “The Supreme Court is focusing only on recovery of forest land from bogus claimants whose claims stand rejected.”

The answer to these contrasting perspectives lies in how the forest rights act is being implemented — how are claims submitted and how are they processed? This report, a followup to what I filed shortly after the judgement was posted online, takes a closer look at those processes. The answer, in short, is that all rejected claims do not indicate bogus claimants. Do read.

Centre’s weak legal defence of forest act means ten lakh families could be evicted, say activists

On February 13, the Supreme Court ordered state governments to evict over 10 lakh forest-dwellers whose claims over forestland have been rejected, a direction that will hurt some of India’s most vulnerable people.

The order came in a case on the constitutional validity of the Forest Rights Act, which was passed in 2006 aiming to “recognise and vest the forest rights and occupation in forest land in forest dwelling Scheduled Tribes and other traditional forest dwellers who have been residing in such forests for generations but whose rights could not be recorded”.

The harsh direction was possible, allege Adivasi activists and lawyers, because the lawyers of the Union Ministry of Tribal Affairs mounted a weak defence of the Act. The case has dragged on for over 10 years under multiple benches, with the Supreme Court yet to answer questions on constitutional validity of the law.

There is an incredible suboptimality here. Some of the claims by the petitioners are indeed valid. As are the concerns of the tribal activists. And so, right now, I am just sitting around holding my head thinking about the hideous complexity of it all and, equally, the casual ease with which both the tribal ministry and the Supreme Court are approaching this question.

The curious case of Russian oil deals that benefited Essar, hurt ONGC

When Russian President Vladimir Putin visited Delhi in December 2014, his camaraderie with Prime Minister Narendra Modi was widely noted. What received less attention were the curiously asymmetric deals that an oil company controlled by the Russian government went on to sign with Indian companies over the next two years.

First, between September 2015 and October 2016, Kremlin-controlled Rosneft sold 49.9% in its Vankor oilfield in the northern parts of eastern Siberia to Indian public sector oil companies. According to oil and gas experts in Russia and India, the Indian companies significantly overpaid Rosneft.

Towards the end of these transactions, in October 2016, Rosneft announced its purchase of a refinery and port owned by the Essar Group in Gujarat. The price surprised observers in both Russia and India – it was much higher than initial valuations.

Reuters reported it was the biggest-ever foreign acquisition in India and Russia’s largest outbound deal. It rescued debt-ridden Essar Oil from bankruptcy. It also gave Rosneft access to the large Indian market at a time it faced sanctions slapped by the United States in 2014 as retaliation for Russia’s annexation of Crimea in Ukraine.

But what about India’s government-owned oil companies?

Did they gain at all?

Interview: ‘We have underestimated the extent of India’s jobs crisis. It is far more serious’

and gosh. one more frikking q&a.

On Thursday, a political storm boiled over after Business Standard reported that, between 2017-’18, unemployment numbers in India reached a 45-year high. The newspaper based its report on a survey, conducted by the National Sample Survey Organisation, called the Periodic Labour Force Survey that the government had not made public. 

According to the report, the country’s unemployment rate climbed from 2.2% in 2011-’12 to 6.1% in 2018-’18. Once disaggregated, these numbers look even worse. Joblessness is higher in urban areas than rural areas – 7.8% versus 5.3%. For instance, unemployment among rural men in the age group of 15-29 years rose from 5% in 2011-’12 to 17.4%. 

The report corroborated what the government’s critics have been saying – that demonetisation and the ham-handed rollout of the Goods and Services Tax have resulted in large job losses. In a press conference called on Thursday evening, the government hit back. It claimed other datasets – like that of Employees’ Provident Fund Organisation – show employment in the economy is rising. At the event, Amitabh Kant, the chief executive officer of Niti Aayog, also suggested results of the Periodic Labour Force Survey, based on a new methodology which conducts quarterly surveys, is not comparable with older NSSO surveys.

Do these various reasons offered as defence hold up to scrutiny? Scroll.in asked Himanshu, an associate professor at Jawaharlal Nehru University.

Excerpts from an interview.