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Good morning. Let’s jump right into our top story for today, a legal ruling that will have an impact on future corporate acquisitions in India.
Steel the deal
In a shocking move on Friday, the Supreme Court struck down JSW Steel’s buyout of Bhushan Power & Steel — four years after it was deemed completed — and rejected the company’s Rs197bn ($2.3bn) insolvency resolution plan for Bhushan. Beyond being a major setback for JSW Steel, the latest development in this long saga is a rather poor reflection of the business landscape in India.
A brief recap: in 2017, Bhushan was one of the first 12 companies flagged by the Reserve Bank of India for insolvency resolution under what was then a newly introduced law. Sajjan Jindal’s JSW Steel was among the groups that expressed interest in acquiring the company (along with Tata Steel and Vedanta), and its proposal was subsequently accepted in 2019. The authorities finalised the Bhushan acquisition in 2021 and it has been running as a subsidiary of JSW Steel ever since. Bhushan is JSW’s biggest acquisition, and the company has made it an important part of its expansion strategy in eastern India. Bhushan has grown to account for almost 15 per cent of JSW’s production capacity.
But with the court’s ruling, all of these decisions and investments from the past four years will have to be rolled back. Jindal will have to detach the subsidiary and revert Bhushan to its state in 2017: a struggling steelmaker laden with $5bn of debt. The ruling also affects several other stakeholders, including public sector banks that may now have to return the money JSW Steel had paid to settle Bhushan’s debts.
The government told local media that it has reviewed the court’s order with the lenders and consulted its lawyers, and is finalising a response. I am curious to see what they have to say, given that this is a court order to which they are not a direct party. JSW Steel has informed the stock exchanges that it is deciding on a “further course of action”. The company’s stock fell 5.5 per cent on Friday and a further 1.76 per cent yesterday.
It is difficult to take a side in this. JSW Steel’s actions during the acquisition were described by the court as riddled with “an entire spectrum of lacunae and flaws”, though it is worth noting that the company was not stopped from completing its acquisition while a series of legal proceedings were ongoing over the past seven years. At the same time, the court’s order to roll back a major multibillion-dollar investment after several years, especially in a capital-intensive core sector, is mind-boggling.
The judgment sets a troubling precedent, casting the shadow of future liquidation on all acquisitions. With the risk that entire deals could be voided even years after being sealed, companies will, at the very least, have second thoughts about making investment decisions. The case also brings into question the insolvency and bankruptcy code, a regulation meant to help debt-laden companies get back on their feet under new ownership, as well as reduce the amount of bad loans that banks were having to write off. This calls for a bottom-up rebuilding of the regulatory and judicial processes surrounding the code.
What are your thoughts on this case? Hit reply or email me at [email protected]
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Losing lustre
India’s gemstone and diamond industry, which has been struggling with poor demand for the past few years, has been one of the worst hit by Donald Trump’s tariffs. Gemstone and jewellery is the third-largest category of the country’s exports to the US, and the US accounts for more than 30 per cent of the stones India exports.
Weak consumption in China and sanctions against Russia have hit demand for diamonds. The downward graph continues, with the latest numbers showing a further 10 per cent dip in sales in the past fiscal year. The mood in Surat, the hub of gemstone and diamond polishing in India, has been sombre these past couple of years, with rising suicides by out-of-work labourers and a general decline in economic prospects.
Under these circumstances, Trump’s tariffs are a body blow. The $82bn global industry has virtually ground to a halt, with shipments through the diamond trading centre of Antwerp down to less than 15 per cent of usual levels after the tariff announcements. Even if India manages to negotiate a lower tariff for gemstones in the bilateral trade agreement, the prognosis for the industry is not great.
For growth, it has to find newer markets in the Middle East and other smaller pools of affluence. Indian exporters are also trying to build a more robust domestic business. This is a strategy that looks good on paper, but I am not sure how easily it will translate to the real economy. The diamond industry is trying to retain its lustre, with front-page advertisements in newspapers and large billboards romanticising natural diamonds as the “real thing”. While this may sway some buyers, growth in demand for cheaper lab-grown gemstones — especially among the younger generation — will hugely outstrip it. The big players in Surat have a lot of thinking to do.
Go figure
Warren Buffett, 94, has handpicked Greg Abel as his successor to run Berkshire Hathaway. Here are some incredible numbers about the company.
My mantra
“You have to do a few things every day that give you a lot of energy. You have to follow your passion. I love playing tennis, I play almost every other day. I swim, I play with my daughter, spend time with my family, and I think those are times that give you a lot of energy. When you are full in your fuel tank, then it’s easier to manage everything else.”
Vidit Aatrey, chief executive, Meesho
Each week, we invite a successful business leader to tell us their mantra for work and life. Want to know what your boss is thinking? Nominate them by replying to [email protected]
Quick question
Do you think the recently announced caste census is a good idea? Take part in our poll here.
Buzzer round
On Friday, we asked: who are the “fish hippies”?
The answer is . . . Bodø/Glimt, the Norwegian football club that is enjoying an amazing run in this year’s Europa League. The nickname “fish hippies” is a nod to their home town’s cod fishing roots.
Yaman Singhania was first with the correct answer. Ram Teja and Aniruddha Dutta came second and third, respectively. Congratulations!
Thank you for reading. India Business Briefing is edited by Tee Zhuo. Please send feedback, suggestions (and gossip) to [email protected].
