This Congress MP, Lagadapati Rajagopal, was not your usual politician, but the founder of the Rs35,000 crore Lanco group that grew as rapidly as his political career. The group, which benefited hugely from political connections, had interests in power, infrastructure, natural resources and EPC (engineering procurement and construction). In 2010, it had ambitions of going global and acquired Griffin Coal in Western Australia for Au$750mn (million). We will come back to this later, but suffice it to say that the coal mine was reportedly acquired by paying a fat premium and, now, has a strange and shady involvement by ICICI Bank.
The second term of the United Progressive Alliance (UPA) was a time when banks were virtually conducting loan melas for corporate India by funding mindless diversification, turning a blind eye to rampant diversion of funds and fraudulent transactions. When these large corporates began to default, they got generous payment concessions in the guise of corporate debt restructuring (CDR) from banks.
Lanco was among several politically-powerful business groups that emerged out of erstwhile Andhra Pradesh and expanded rapidly because of their skill at bagging very large infrastructure projects (roads, power, ports and infrastructure) funded by massive bank loans that were frequently restructured, even as fresh loans were granted to other companies of the same groups. Many, like Lanco’s Mr Rajagopal, were also MPs. In 2006, Lanco Infratech Limited was made the group holding company to consolidate its many business entities. In 2011, it had become the largest private power supplier in India. But this did not mean it was profitable.
Even before the pepper spray episode, Lanco was defaulting on its loans and struggling to pay salaries. Yet, in December 2013, it wangled a Rs9,000 crore CDR package that included a reduction in interest, fresh loans of Rs2,500 crore, restructuring of bank guarantees and letters of credit, and a two-year moratorium on repayment. The deal was outrageous enough, at that time, for Moneylife Foundation to write to Raghuram Rajan, then governor of the Reserve Bank of India (RBI), requesting him to order an investigation into how the CDR package was rammed through with banks. (Moneylife Foundation requests RBI to investigate frequent debt restructuring of Lanco).
Surprisingly, it was only in August 2017 that IDBI Bank started bankruptcy proceedings against Lanco under directions from RBI. Unsurprisingly, the restructured loans ended up as big defaults in bank books as the business crumbled in tandem with its political clout. For instance, a former IDBI banker tells us how the credit appraisal of Lanco Babandh Power Limited ‘was a joke’, but the company still obtained generous loans for a 1,320MW power project. It was eventually liquidated when for just Rs198 crore when there were no serious bidders. Given that secured creditors (mainly banks) alone had outstanding loans of Rs6,217 crore, one can imagine the losses inflicted on the system. There was evidence of diversion of loans to the tune of Rs2,000 crore and excess funding to a group entity acting as EPC contractor which has been given a quiet burial.
The Australian Connection
An Australian media company has now opened a new can of worms showing how Lanco had purchased a lemon in 2010 and its bankers were either clueless or ignorant and complicit. A series of articles by ABC News has exposed questionable dealings not only by Lanco in its purchase of Griffin Coal but, more importantly, its banker, ICICI Bank.
Griffin Coal, which is in liquidation, and has been a crucial link in Western Australia’s energy requirements warranting special attention because a serious energy crisis is looming over Australia. Here are key highlights from a series of detailed articles by ABC News starting August last year.
Around 2010, Lanco Infratech paid a ‘hefty sum of Au$750mn to buy the Griffin Coal mine on the claim that coal would be exported to India. The misadventure was generously funded by Indian banks and reportedly made losses ever since the acquisition.
ABC News says, “Realistically, Lanco was sold a pup—a mirage that it could dig up millions of tonnes of coal each year and export the fuel to a country thousands of kilometres away.” So why was the purchase such a disaster from the word go? Because the mine was landlocked and would require Lanco to invest heavily and pointlessly in infrastructure to carry the coal to ports. Meanwhile, Lanco had to honour long-term contracts signed by Griffin Coal with domestic users “at a price that barely covered its cost of production.” (Read: ABC report dated 19 November 2022). Despite efforts to keep it afloat, Griffin Coal went into receivership in October 2022, says the report.
A more stunning revelation is that ICICI Bank apparently stepped in to make “a bad situation even worse” by funding the transfer of Griffin’s ownership to itself. According to the report, Griffin Coal owes a ‘staggering’ Au$1.4bn (billion) to ‘so-called secured creditors’ and “ICICI is by far and away the biggest of those reportedly owed as much as 80 or even 90 per cent of that $1.4 billion.”
The report correctly points out that ICICI Bank has made no public disclosure about the Griffin Coal issue to regulators or shareholders. According to ABC News, things became public only in August 2022 when Griffin Coal went into liquidation and ICICI Bank fought off an attempt to acquire it leading to revelations in court documents.
A more serious revelation is that ICICI Bank lent Au$60mn to an already beleaguered Griffin Coal through a ‘little known’ and ‘heavily indebted’ company with a near-junk credit rating called Sindhu Trade Links, a loss-making company which is listed in India. It goes on to say that Sindhu Trade Links is a big lender to Griffin Coal through its subsidiary Oceania Resources, which is so tiny that it had net assets of just Au$784,722 and Au$6.4mn in revenue as of March 2020. (ABC report of 15 November 2022)
The reports go on to quote receiver Matt Donnelly of Deloitte saying, in “a bizarre and ‘murky’ twist, Oceania borrowed the US$60 million from ICICI, which subordinated its own claim on the mine under the deal.”
Now Sindhu Trade Links is also in deep financial trouble. Ankur Rustagi of India Ratings and Research in his December 2020 report had said that “Sindhu's problems in large part stemmed from the poor performance of its coal assets, which include Griffin” and that its total outstanding debt was US$130mn.
ICICI Bank, which is at the centre of the controversy, did not bother to respond to an email addressed to Sandeep Bakshi, managing director and chief executive officer (MD&CEO), despite a follow-up with the communications team. ABC News also alludes to a similar lack of response from ICICI Bank. An email to the compliance officer of Sindhu Trade Links also went unanswered.
The Lanco group has inflicted heavy losses on Indian banks, which have all been paid by the people through the exchequer, but the ongoing role of bankers, as alleged in these articles, clearly needs deeper investigation.
So far, I have focused on the lending shenanigans of public sector banks (PSBs), but the Lanco-Griffin saga reveals that ICICI Bank’s lending needs scrutiny and disclosures beyond the ongoing investigation into its dubious funding of Videocon.
Can ICICI Bank get away with its arrogant silence on such a serious issue, where it has allegedly acted as the ‘puppet master’ all along? What made ICICI Bank take on the Griffin Coal problem instead of ‘walking away’ and cutting its losses? Also, is ICICI Bank acting alone or is it part of a syndicate of banks? There are no answers. When will the banking regulator find out and tell us why “ICICI has plunged more than a billion dollars into a hopeless bet on foreign soil?” Will shareholders of the Bank, too, start asking some questions?
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