By Nirmal Gangwal
Business restructuring plans: The Covid-19 pandemic has pushed several businesses to the brink of collapse. The current crisis is a once in a lifetime situation and businesses must learn to survive such situations. Let me start with my own story on how I handled my own adversity and converted it into an opportunity.
Way back in 1996- 97, my own account had become NPA. It was a very small account — an MSME and I was a young chartered accountant at that time. I realised that taking money from the bank and on lending to the to the customer needs a different architecture, different systems and processes.
I realised that my money is not coming back from the customers and decided to approach my banks for business restructuring. I reached out to my lenders and told them that I have a problem and I need to resolve this. Bankers didn’t believe me that I had a problem, and said no other NBFC has a problem how come you have a problem. It took me eight to nine months to convince them that have a problem and thereafter they did a business restructuring. At that time there was no IBC, no provisioning, no RBI norms classifying my business. So, the bank did a restructuring for 10 years.
My conscience was telling me that something is not good. What is the banker’s fault? I have somehow not done the business the right. Like me, many businessmen might have gone through similar situations because of an error of judgment or an external situation. So, when they face adversity what can they do? I paid off my entire loan to the bank within two years instead of the 10. I divested my personal property, the company property and became debt free.
Since then, my problem became my product. Since 1997, Brescon we have done business restructuring worth Rs 1,50,000 crore. So, I converted my problem into a product, my adversity into opportunity, and only last year we realized that how I did it. So, I thought let me share my experience with the audience as a learning. There are three principle (3Cs) which I have practiced in my career.
Confess that there is a crisis
The first one is that when you have a problem, you confess that you have a problem. We Indians feel that a problem means failure and failure means stigma. This is a cultural issue. Our parents, our teachers, our forefathers never told us that you can fail, there is no problem and you must keep on doing it. We were told you cannot fail. If you fail, you’re a failure socially and will become an outcast. I feel that the biggest learning happened at the moment I faced a problem. I immediately said Nirmal this is a problem you have to address it. So, I think admitting or confessing is the first thing you must do when you are faced with a business crisis.
We have seen three or four bust cycles in the last 30 years – in infrastructure, in metals, in power, in textiles. Everybody goes through problems. We are not preparing our mind to deal with the problem. Our MBAs and Chartered Accountants must be taught how to deal with project finance, how to raise new money, how to make CMA data. It is not taught how to deal with problems. So, coming to the point that when you face a problem, first thing is to admit that there is a problem. So, first of 3Cs is to confess. Once you admit that there is a problem, half of the battle is won.
Communicate with stakeholders
Second problem which I see in India is that because of the social stigma we don’t communicate. We don’t communicate problems even at home – husbands don’t communicate with wives, sons don’t communicate with their father, father does not communicate with sons and daughters. Because we don’t talk negative and we are taught to talk only positive things. But this is not a business during the license raj where you get a licence to build a cement factory it’s like a licence to make money. Today with competition, and globalisation, things are so competitive that business means it has a 50% chance of failure.
So, the second principle of 3Cs is communication. So, the second principle is that you communicate with all stakeholders — your employees, your family, your banker, your supplier, or your customer. I think if you can communicate the problem well in time, you have a 90% chance of recovery. Your stakeholders are your partners. They are not partners only in prosperity, they are also partners in pain. It’s a mindset issue in the India.
When you build, when you raise project finance, create a purchase department, or sales department, you discuss with your CFO. But when you hit a problem what will your CFO do. You must have a chief liability officer (CLO) who will prepare the company for business restructuring when you have a problem. You must communicate, and must communicate honestly.
Commit to business restructuring
The third principle to follow when you are in trouble commit. You know that there is a problem and you have communicated with your stakeholders that there is a problem. Then as a business owner, you have to come out with a solution. In my case, I realised that I cannot borrow and on lend money. You require huge infrastructure to build your risk mechanism, must have a legal team, more understanding of the sector and the risk that entail.
You cannot venture into a business just because of ambition. So, once I decided that I am not good in lending business, but good in ideation business. This bank loan is my problem and I have to resolve it whether by sacrificing my personal assets or anything. I divested assets, and paid off to the bank. You can also apply these 3Cs principle in life when you face a business adversity — Confess, Communicate, and Commit.
You cannot say that I can’t commit, my banker will commit. Sorry it doesn’t work that way. Banker gives you money for interest, and it is your problem and your ownership to come out of the problem and show a path of recovery. In Brescon’s 25-year journey, we studied a large number of cases. We are coming out with a book that is showcasing 25 cases. These business restructuring cases explain how to come out of a crisis in flying colours. The combined market cap of these companies could be Rs 2 lakh crore. When they faced the crisis their market cap could not have been more than Rs 2000 crore.
This means something worked, and we also have other cases where things did not work. So, we analysed the whole scenario and realised that the only thing that works is that you must be into a viable business. Suppose, before Covid-19 also, you were in an unviable business then definitely you must close your business. You cannot blame the government, or regulator, or the banker. It’s better you clean up things and say this was not a good business. But, if your business is viable and the promoter is willing to commit, there is the possibility of a revival. I think there is enough regulation, there is enough money, which can come on the table.
The magic of 3Cs
The problem in India is that businesses are sub-scale, or the promoter is incompetent. Just because you come from a business family and you are in business doesn’t mean that you have a licence to do a successful business. The business requires competence, business requires capability, business requires tenacity. I agree government support is required, I agree that MSMEs are the backbone of the country in terms of jobs, in terms of taxes. But I also believe that business require a different mindset, it require a different tenacity, it requires different commitment, and you have to be honest.
In India we have a mindset issue. Otherwise, it’s a great country — we have a huge unmet demand, huge infrastructure, is unmet consumption demand, we are ambitious people, and is a young population. The government is also doing a great job, the public sector banks are doing well. I see that there is a trust deficit between the lender and the borrower, between the regulator and the lender, there one at the government level. In such a situation, it is difficult to do business. It’s time every person has to be decisive, and responsible.
We are at such a stage of economic development where we need to be definitive, not tentative. We need to take action as a regulator, a lender, a borrower or an employee. Employees also have to ask why is my salary being cut? Salary is cut because of a reason, for the sustainability of the business. In our book, we have explained how someone could be successful. In many of Brescon cases the companies emerged stronger after the turnaround. These are the opportunities if you can handle the tough times with sincerity, tenacity, and commitment. Let us use this crisis to introspect and rebuild ourselves.
If you have a problem, you reach out to the banker. It’s the social stigma that is creating the problem. And when you delay communicating the problem, you face greater uncertainty, and trust. I know that the cause of financial distress cannot be only Covid-19. There are many causes. In India the mining ban was the cause of huge stress. Power purchase agreements were not honoured by the state governments, causing of stress. 2G scam was also a cause of stress. Metal cycle going down is also a cause of stress. In infrastructure sector, the government arbitration claims not getting settled for years also causes stress.
Let us understand how to handle stress well and honestly with a definitive approach. In my case, my Rs 5 crore problem became a Rs 1,50,000 crore opportunity. I used to curse God, but maybe God had a different design — to transform me from a normal investment banker to a special situation investment. These are my learnings from the Brescon story. India as a country offers us a huge opportunity. I have never seen this type of opportunity and these are the times that separate adults from kids. Crises are the best teachers. It is up to people to find opportunities it offers.
(Nirmal Gangwal is Managing Partner, Brescon & Allied Partners. This article is a reproduction of his speech at a webinar organised by Policy Circle.)