Money trap: At insolvency’s doors, Dhoots forced to exit

“Whatever role life gives you, play it big.” That used to be a tagline of consumer electronics major Videocon. Ironically, it was the play for big that led to the downfall of this home grown company.

In 2008, when Videocon, armed with an all-India licence, ventured into the telecom business, it did so with starry-eyed hopes of offering something unique to customers. The vision was no less than Reliance Jio’s, says a senior executive closely associated with Videocon’s telecom roll out. “We would have been the fastest company to launch pan India telecom services,” he says. The group spearheaded by Venugopal Dhoot had ambitions far stretching beyond its existing businesses.

Late industrialist and founder of the Videocon Group Nandlal Madhavlal Dhoot had started out by selling paper tubes along with his two brothers but they soon diversified — eventually becoming the first Indian company to get a licence to manufacture colour TVs in 1986. The company that prided itself as “the Indian Multinational” then expanded: Making air conditioners, refrigerators and home entertainment systems, subsequently foraying into oil, gas, telecom, retail and DTH services.

Aggressive expansion led to increased borrowings, and soon the businesses collapsed. The stockpile of debt which was around ₹7,000 crore in 2007 kept climbing. In 2018, when Videocon was dragged to the National Company Law Tribunal by the State Bank of India after the Dhoots defaulted on their loans, it was estimated the group and its entities owed the bank a whopping ₹ 46,000 crore.

Whimsical ambitions

The group’s fall from grace is marred by its proclivity to stretch too thin, whimsical ambitions, financial irregularities, quid pro quo deals and its peek-a-boo dealings on high-value loans with banks. But in the final reckoning, it was its dalliance with the telecom business that proved to be its nemesis, with the group estimated to having lost nearly ₹21,000 crore after the Supreme Court cancelled all the licences issued in 2008 as a fall-out of the 2G spectrum scam.

“Companies like Videocon succumbed to the greed factor caused by flawed policies, lured by the prospect of money,” says former VSNL Chairman BK Syngal.

Venugopal Dhoot pleads not guilty. “You cannot blame the company for the loss on account of telecom. It was one of the best businesses of its time. The group suffered huge losses of more than ₹21,000 crore in its telecom business on account of the cancellation of licenses due to the illegalities of others,” he says, when contacted by BusinessLine.

Chequered History

Videocon Group’s history has other glaring incidents, too. In 2019, the Central Bureau of Investigation (CBI) registered an FIR against former ICICI Bank CEO Chanda Kochhar, husband Deepak Kochhar and Dhoot on claims of irregularities in loans sanctioned by ICICI Bank to the Videocon group in 2012.

The company’s diversification into oil and gas, and the bids it made on projects in these sectors, contributed to its fall. After tasting success in the production sharing contract for the Ravva oil field in Andhra Pradesh in 1994, Dhoot bid for blocks in Timor Sea and Oman in 2006 and a 10 per cent participating interest in an oil and gas block in Mozambique in 2008. The CBI alleged irregularities in the acquisition of Videocon Industries’ stake in the Golfinho-Atum field in Mozambique.

The inquiry revealed that in 2012, the SBI-led consortium sanctioned a Standby Letter of Credit facility of $2,773.60 million to Videocon Hydrocarbon Holdings. This amount for their oil and gas assets in Mozambique, Brazil and Indonesia, and other funding requirements, including refinancing existing loans. CBI alleged Videocon siphoned a part of the amount to other businesses and accounts.

Dhoot claims this is incorrect. “The sale detail of the Mozambique deal is already in public domain and the same was utilised for repayment of facilities to the banks,” he says. “Even today, the current oil and gas assets have huge resources and the corporate insolvency resolution plan of VOVL is likely to fetch around ₹17,000 crore as against the loan of approximately ₹20,000 crore.”

Videocon had posted net profits of ₹854.295 crore in September 2008 and net sales of ₹9753.654 crore. By March 2019, its loss after tax stood at ₹6760.755 crore while revenue fell to ₹906.597 crore.

Insolvency Resolution

Fast forward to the present — the Committee of Creditors has approved the resolution plan submitted by Twinstar Holdings Limited — a Vedanta Group Company — and its ₹ 5,000-6,000 crore offer for Videocon Industries. But will Vedanta be able to revive the company?

“For lenders especially, the image of the founder takes precedence over the image of the firm itself. In Videocon’s case, the perception is that Dhoot didn’t show adequate financial dexterity... and, with that, the charges of corruption,” says Anuj Kapoor, assistant professor of marketing at IIM-Ahmedabad.

Finally, says Syngal, it has to be seen who was affecterd. “The only sufferer is the saver, in the bank savings account, in mutual funds etc, and the poor employees. That is the problem that needs to be addressed and resolved.”