Videocon's uncertain future: Here's why trouble is brewing for Venugopal Dhoot's company

The arrest of Venugopal Dhoot, Promoter of the Videocon Group, primarily known for consumer durables, once again throws open the fate of the business empire he once owned. Reeling under a mountain of debt, the fate of the high-profile group is now, at best, unknown. 

Chanda Kochhar, ICICI Bank’s former MD & CEO, allegedly misused her position and granted loans to Dhoot in 2009 and 2011. Later, the CBI filed a case against Kochhar, her husband Deepak, and Dhoot. The allegation was that Dhoot had invested in NuPower Renewables, a company co-founded by Deepak Kochhar, after having obtained the loans. In 2012, these loans were declared as non-performing assets.  

In mid-2021, Vedanta group company Twin Star Technologies had offered Rs 2,962 crore for Videocon Industries against admitted claims of `64,938 crore of the secured financial creditors. That translates to 4.15 per cent of the claims for all creditors and 5.33 per cent for financial creditors. The liquidation value of Videocon was Rs 2,568 crore and the insolvency tribunal had then expressed surprise over the similarity of the bid value and the liquidation value. Twin Star’s offer was to buy out 13 companies of the Videocon Group, which included consumer electronics, home appliances, oil and gas, telecom and electronics retail. The diversification spree and the somewhat easy access to bank loans led to the expansion of the Videocon Group. However, huge setbacks like the 2G spectrum scam followed by the cancellation of telecom licences did Dhoot in.   

Now, the Twin Star proposal, while cleared by the National Company Law Tribunal (NCLT), ran into a hurdle early last year with the National Company Law Appellate Tribunal (NCLAT) setting aside the resolution plan. Citing defects in the plan, the NCLAT allowed the lenders to decide on the process of restarting the bidding mechanism. The earlier plan was cleared not just by the NCLT but the Committee of Creditors (CoC) as well. Over 95 per cent of the CoC had given their go-ahead, while Bank of Maharashtra, SIDBI and IFCI opposed the move stating that the resolution value was too low.

There was an interesting twist to the bid for Videocon Industries and its subsidiaries. In December 2020, before the meeting of the CoC to consider the resolution plan, Dhoot had made an offer of `31,000 crore. This was for a settlement with the creditors. It is learnt that the creditors were not taken in by this and it eventually did not go through.

The big attraction in the insolvent Videocon Group is the Ravva oilfield, where it holds 25 per cent share through Videocon Petroleum. This is located in Andhra Pradesh, with Cairn Oil & Gas, now a Vedanta group company, owning 22.5 per cent stake. Other shareholders are state-owned Oil and Natural Gas Corporation with 40 per cent stake, with Ravva Oil, owned by Japanese company Marubeni, holding the balance 12.5 per cent. The oilfield is housed in Andhra Pradesh’s Krishna-Godavari basin, with production having started in 1994. If Twin Star had managed to acquire Videocon, it would have doubled its current holding.  

According to Mahesh Singhi, Founder & MD of Singhi Advisors, an M&A advisory firm, the role of Videocon’s original promoters does not matter, since the business is now out of their grasp. “It has to be viewed as a business case and liquidation appears to be the logical next stop,” he says. To him, there is a chance that it can fetch more than what Twin Star offered earlier. “It all depends on how motivated the buyer is and how badly he wants the asset.” 

Another interesting and hugely controversial precedent on loan settlement is that of Siva Industries. Promoted by maverick entrepreneur C. Sivasankaran, who made his fortune in telecommunications, coffee and internet businesses, Siva Industries ran up loans to the tune of `4,863 crore, with the final settlement amount at just Rs 323 crore or a minuscule 6.6 per cent. What stands out is that the SBI, the biggest bank in the country and also a CoC member, expressed dissent against this proposal. Besides, the amount that was accepted as settlement was lower than the liquidation value of the company. One of the lenders, Canara Bank, had an exposure of around `1,200 crore that it privately sold to an asset reconstruction company.  

Insolvency resolution professional Vivek Parti points out that the NCLAT has “remitted back” the NCLT order on the Twin Star bid on account of mandatory non-compliance. “Thus, it has not questioned the commercial wisdom of the CoC,” he says. On the specific issue of whether liquidation is the way forward, his view is that courts may be reluctant to move the corporate debt there since it is the last resort. “A successful resolution applicant could be given an opportunity to correct the defects or a new resolution can be called to provide an extension for the CIRP (corporate insolvency resolution process) similar to what took place in Jaypee Infratech.”

By the looks of it, the saga of Videocon is not going to get over anytime soon.

@krishnagopalan