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The billionaires that never were

billionaires

A news report says that India’s billionaire club has shrunk to a three year low. From a peak level of 90 Indian billionaires in March 2018, we now have 71 of them. Among the prominent ones who have exited from this hallowed group are Anil Ambani whose wealth is reportedly down by 92%, Rana Kapoor of Yes Bank whose wealth is depleted by 70%, Dilip Suryavanshi of Dilip Buildcon whose wealth is eroded by 58% and Motilal Oswal and Ramdas Agarwal of Motilal Oswal Financial Services, who have lost 42.5% of their wealth since March 2018. The most depleted is the case of Anil Ambani, whose promoter stake which was valued at Rs. 25271 crores as at March 2018, is now worth a mere Rs.1981 crores, with all his major companies led by RCom being in huge financial stress. Sectorally the biggest fall has been in sectors like NBFC, real estate, automotive, pharmaceuticals and graphite electrodes. The slide in wealth continues, with 90% of shares having witnessed a fall in prices, after the disappointing budget. Though the growth in Indian economy is in a downturn mode, with stress creeping in across all sectors, yet sectors like IT, FMCG and cement have done well, which explains the rise of 25% in the wealth of Azim Premji. No explanation is needed for the continued meteoric rise in the wealth of Gautam Adani.

 

The primary wealth that is considered for computing the wealth of a billionaire is the market value of the shares he owns in his listed companies and to state the obvious, the then billionaires have become millionaires, only due to  a sharp fall in the share prices of their companies and that continues, at a time when India’s economy is in stress and slowdown, corporate profits are dipping, consumer demand is falling, global trade is  receding and is uncertain due to the US-China trade wars and the government is initiating  no reforms to restore investor confidence, to revive investment in new projects, which is languishing. Bears have taken grip of the stock market and bankruptcies of those who were earlier known to be big and formidable are on the rise, whether it be RCom, Jet Airways, ILFS, Bhushan Steel, Jaypee Group etc. And as the Indian economy continues to slowdown, the arabpatis will be demoted to crorepatis and maybe lakhpatis too.

 

To us, this gives rise to a much more basic issue and ie. were these fallen billionaires, now millionaires, really owning real and stable wealth, such as to be called uber rich billionaires, or were they merely riding a false bubble, where the real wealth was very little and which has now burst. In our analysis, many of these fallen billionaires were never really as wealthy as they were then shown to be and their wealth was not of such magnitude as was claimed to be.

 

  1. These billionaires built wealth on the basis of bogus and suspect financial statements of their companies, which showed a false rosy picture. It was on the basis of such manipulated financial statements that they also manipulated the prices of their shares on the stock markets. Companies like R Power, R Cap, R Com, Jet Airways, ILFS, Yes Bank, Sun Pharma etc. are in this category. The corporate profits were fudged, so were their share valuations and so was the wealth of these fallen billionaires.
  2. The corporate structures of many companies were founded on high debt, with poor promoter equity contribution. When the economy got into a slowdown mode and these promoters could no longer game the system, such as to get further bank loans, this structure of debt crumbled and so did the façade of wealth created by these billionaires. The Reliance group is a classic case here.
  3. With an unsustainable structure of debt and low equity and false financials, the equity valuations were clearly bogus and so were these billionaires.
  4. Many of these former billionaires, built their wealth out of crony capitalism, ie. exclusive favours given to them, by the system, due to their proximity to those in power. Their wealth and business was not generated due to entrepreneurial risks, but was due to their nexus with those in power. Their eroded wealth is a reflection of their eroded influence and proximity to those in power.
  5. Such entities were never competitive and could not survive when the times got bad in an economic slowdown as we now witness. They were thus truly not of stable real wealth and enterprise and were never meant to be billionaires.

 

Times have changed and the real wealth generators today are the likes of BYJU, OYO, OLA etc. Despite their questionable wealth, these fallen billionaires in their heydays never got into these sunrise sectors and the sun will shine on them only when crony capitalism and blatant financial manipulations are restored to them, which we hope does not happen.

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