There is an uncanny similarity between Sahara Group chief Subrata Roy and UB Group chairman Vijay Mallya. They share a larger-than life persona, an appetite for big risk backed by borrowed money and love for media spotlight. Today, both of them are in deep financial trouble, scraping the bottom of the barrel to put an end to the misery they have landed themselves in.
Sahara, who recently completed his second year in Tihar jail, is fighting hard to raise the bail money amount of Rs 10,000 crore. He reportedly deposited Rs 4,000 crore with market regulator Securities and Exchange Board of India (SEBI), even as he put up his hotels in India and the US for sale to make up the balance. His lawyers recently told the Supreme Court that Rs 17,000 crore of the Rs 30,000 crore raised from investors without Sebi’s approval has already been returned. If and when out of jail, Sahara’s battle to refund the balance will continue.
Mallya is faced with a similar challenge, but of a relatively lesser magnitude. On Tuesday, his lawyers told the apex court that a one-time settlement with the banks is possible, with an offer to pay up Rs 4,000 crore of the Rs 9,000-crore Mallya (and his companies) owes the 17-member consortium of banks, by September this year. This consortium led by the State Bank of India said it will examine this offer.
One of Mallya’s most valuable and liquid assets today is his 8 per cent stake in beer maker United Breweries. This, at the current market value, is worth around Rs 1750 crore and according to stock exchange disclosures, 98 percent of this is already pledged. Mallya also owns real estate assets in India, Europe and the US. Liquidating some of these and honouring the Rs 4000 crore deal, at least on paper, seems plausible.
If the banks do accept this deal, the bigger worry then is not just about collecting what Mallya promised to pay, but setting precedence for other willful defaulters who may expect a similar deal. Reports published in December last year placed the size of “stressed assets” in the Indian banking sector close to Rs 7 lakh crore. Accepting Mallya’s offer, at least in theory, would mean banks are willing to make a similar deal with other defaulters. Earlier this month, finance minister Arun Jaitley on two separate occasions said every last penny of what Mallya owes will be collected and later, in more general terms, said banks are empowered to take “coercive action” to recover their dues.
Despite all the similarities, there is one crucial difference between Sahara and Mallya, at least from the lenders’ point of view. Sahara is in jail and Mallya is outside the country negotiating from a safe distance. Turning down this offer and engaging in a long drawn legal battle to recover everything he owes to the banks, despite Jaitley’s rhetoric, seems like a road to nowhere.