Dick anyway !

I’ve always been a great fan of the `inside CEO’.

That’s no great find, agreed. Insiders, I mean those who have significant stakes in the lasting success of enterprises such as its various stakeholders including Shareholders, long serving employees or its largest suppliers or even beneficiary community members will certainly make a better CEO than wet-behind-the-ear B-School graduates that have just one goal – "personal prosperity. Let the enterprise go to hell."

Here’s a report on HBR survey that just confirms it.

Imagine a Reliance minus Dhirubhai in the mid 80’s –mid 90’s ? Or worse, try putting a jargon wagging B-School cartoon in his place? One reason why Lehman Bros collapsed could be that it’s CEO was not someone with Lehmann as his second name. It had a dickhead at the top, sorry his name was Dick Fuld. Dick anyway !

.

L&T had no other option

As more than active observer of stock markets, I was just wondering what would I do if I were heading Larsen & Toubro, that bought 4% of Satyam stock at Rs.170 apiece earlier this month, after which the stock just collapsed to Rs.20 levels...?

I would have just bought up more. Not just for averaging, since L&T has an infotech arm that isn't going anywhere, this is the best opportunity to hire a company that has some marquee customers like GE.

And they seem to have done exactly that... I, like anyone else was stunned by the volume of over 300 million shares that got traded in NSE and BSE tody. First I thought it was the interest because of new suitors (iGate). Later I get to know L&T was buying up. But it certainly didn't hurt... I exited my positions when the stock touched 39.25 and made a neat profit...

Will re-enter tomorrow between Rs.35 - 40 levels, if I get it.... I feel L&T should still be bying up until its 15% with them and then proceed to make an open offer for further 20% and as usual I wouldn't wait to tender, will just exit during the melee in the market and retreat to the sidelines...

"Vaccum before you dream again"

“The stock and commodity markets seem to go just one way and that’s down. Hundreds of millions of market cap eroded, value destroyed. The recession is here to stay and no policy measures, interest rate cuts, liquidity infusion seem to work. OMG, it’s pushing us back to where we started out – point zero.

Not that I am scared. But it’s a daunting task to claw your way back from such depths. I’d managed it with little resource and a lot of will. But I was a lot younger then. Now after a couple decades, if I’ve to repeat that trek, I might have to reinvent. Then I was alone; now I’ve got a family too!”

This was the kinda’ talk that did rounds when a bunch of us old pals met recently. There were software pros, engineers, finance pros and even one professor of economics in the gang. This concern about the future and the hard times that we’re forced to go thro was the common thread.

They say if we are facing in the right direction, all we have to do is keep on walking. But who knows? Suddenly we feel like a bundle of beginnings. In front of us lay a stone with a hole in it. Who could’ve bothered to drill it? Nature. The drops of rain make a hole in the stone not by violence but by oft falling. That meant something. It really did. You can't go through life quitting everything. If you're going to achieve anything, you've got to stick with something. Consider the postage stamp: its usefulness consists in the ability to stick to one thing till it gets there. The race of life is not always to the swift, but to the one that keeps running. Fall seven times, up eighth.

Coming to think of it, this recession is like a mountain. Nobody trips over mountains. It is the small pebble that causes you to stumble. Pass all the pebbles in your path and you will find you have crossed the mountain. So why despair? It's often the last key in the bunch that opens the lock. You may not be there yet, but you're closer than you were yesterday.

And what if your dreams turn to dust? Simple. Just vacuum before you dream again ;-)

.

Tatas Man Up

Chivalry sometimes shows up when you run out of choices. When Tata owned Indian Hotels rights issue (6% NCD cum convertible warrants at Rs.150/- Offer size Rs.600 crore) got barely 19% subscription, the promoter group has the gall to pick up the unsubscribed portion – even as the stock is languishing at Rs.104/- at close yesterday.

The offer was doomed from inception. Wondering how Nimesh Kampani’s JM Finance let such a dubiously priced issue hit the street. The NCDs carried a 6% rate of interest when even AAA rated PPF is offering 8%; the conversion price of attached warrant at Rs.150/- (1 for 10 equity shares held) when shares were quoting Rs.114/- was insane. Ok. The name is TATA. But when the sentiment is rock bottom, names don’t mean much.

When markets thaw stock prices quote low and ideally clients should be advised to put off their fresh fundraising plans and instead use some group funds (they have bought in Rs.480 crore now to bail out the issue) to shore up their stake - either through a buyback or through creeping acquisition – like some smart founders do now. But then that would mean JM should settle for a lower fee (for buyback) or for just brokerage (from creeping acquisition), if routed through them. Anyway I-banks can’t count on Tata clientele for long; now that they are coming up with their own investment bank – Tata Capital.

.

Realty wisdom - "build frill-free houses"

PE funds clearly having the upper hand. If you had longed for a piece of India’s realty pie and couldn’t get in because of unjust valuations, now is the time. Why, you can even wring and squeeze them on terms your own.

Industry experts feel the only avenue available for raising capital in the current situation is at the project SPV level and by way of private equity or similar sources, that is generally the most expensive method of raising capital. Concerns about liquidity will continue to plague the market since debt will not be easily available. Real estate players had traditionally raised money from debt funds via corporate deposits and commercial paper. However, debt funds are currently not eager for more exposure in real estate and are continuously rolling over the debt advanced to these players. The primary source for institutional funding will, therefore, now be private equity.

So, there you go. Pick up the thread and buy into a few near-finished projects on the cheap. By all means worry about inflation and falling sales numbers. But India is still a market with large unmet demands for housing. All that you need to do is drive some sense into your portfolio companies to build affordable, frill-free houses that people can call home – where end users drive demand of what was once a neat long-term investment; we used to call it `property’ then - ringing in permanence and legacy - not an `asset class’ as defined by wealth managers now.

.

[Caution - Sales pitch. If you are a realty / infrastructure player looking out for some large funds for your FDA compliant project, I have a few private equity investors that are interested. Just send me a mail at kmonyb@gmail.com with your project report / business plan and I shall be glad to assist.]

.

.

Own your Investment Bank

What got started as a hobby, a sort of silent mutiny against mediocre employers that lacked agression and nerve has now grown into a full fledged business model. I am talking about my own Private Equity / Venture Capital advisory business that up until now has been a sole propreitory outfit advising startup / expansionary stage companies on a variety of issues elaborated in the presentation embedded on top. (Just mouse over it and click when thumbnail appears).

My take on the industry can be found here, here and here. If you think like me and have put in over a decade in the industry, you know what I mean. Now that the markets are a lot sober and deals harder to come by because owners think their businesses are undervalued. PE/VC firms are not getting enough deals at the same pace as they raise funds. We need to bridge that gap, fast. It's the time to put well intentioned and innovative deal structures (not removed from the realm of common sense) to work. The excitement and the reward are ours, up for grabs.

That's why I chose this moment to assemble a strong in-house team, catalyze and grow big. I am looking for experienced, entrepreneurially inclined analysts / investment banking professionals (from financial / operating streams) with just one caveat. Be ready to *own* a piece of this enterprise to be based out of Mumbai (initially). With our enlightened vision, unstinted support and excellent connections, I hope it should grow into a mid-sized investment bank within about three years from now.

Do you have what it takes...? Just write in with your resume and investment potential to me at kmonyb [at] gmail [dot] com

Update : Here is more proof of opportunity I am after - big firms saying no to (not so) small mandates. Small players never had it better. What keeps you on hold? Enough of helping your boss get rich. Grow so big and rich, I mean rich enough not to waste your time. Do write in or drop a comment to this post!

.

I pat my back

One great upside to blogging as I see it is that you can pick up on a weak signal, apply your own logic, speculate outcomes, post it over the Web and attract comments. Then validate your foretelling skills against what appears in the mainstream media much later. So what’s so great about it? Date stamps. If your deduction of likely outcomes precedes the subsequent endorsement in mainstream media, your logic is flawless. You can rely on it and take critical decisions with greater confidence. It’s a great joy. I’ve had it on quite a few occasions before. Here and Here.

This morning I had yet another. I find the lead editorial in today’s ET endorsing what I speculated three days earlier – on what Reliance Power `out-of-the-box bonus’ means to investors. When tallied point by point, I’ve a few extra points to my credit that’s yet to be spotted by mainstream hacks. Here is the next salvo from R-Power, just as I had guessed.

Meanwhile, I plod on… A sharp logic is indispensable in my line of work – private equity deal scouting and bug fixing :)

.

Update : Not sure if R-Power has execution capabilities on the power generation and distribution front. It’s current priority is bonus distribution :-)

Between an SEZ here and an SEZ there…in China

When the people of Uttar Pradesh elected Mayawati’s BSP with a thumping majority (overthrowing Mulayam Singh’s Samajwadi Party), her first item in the agenda for governance was a given – review all SEZ cleared by the Mulayam Singh, the former Chief Minister of the State.

In one of its most significant decisions since assuming power, the Mayawati government in UP has announced its intention to refer the allotment of 1,200 acres of land to Reliance Anil Dhirubhai Ambani Group for setting up an SEZ, to the Union government for review.

I also had a lookback at Nandigram riots in West Bengal (over Tata's SEZ) where the Left rules – for several decades now.

I was reading Vinnie's post on instant Chinese cities (Thanks Vinnie, for the pointer) and felt a bit wistful. How long would it take for our people to learn from our enterprising neighbors?

Excerpts from NatGeo article -

“In 23 minutes, they designed an office, a hallway, and three living rooms for factory managers. On the top floor, the workers' dormitories required another 14 minutes. All told, they had mapped out a 21,500-square-foot (2,000 square meters) factory, from bottom to top, in one hour and four minutes. Boss Gao handed the scrap of paper to the contractor. The man asked when they wanted the estimate."How about this afternoon?"

The contractor looked at his watch.

It was 3:48 p.m.

"I can't do it that fast!"

"Well, then tell me early in the morning."

That’s how they do it in China. We bloody well understand and fast…

.