Implosion (53 page)

In October 2013, the Enforcement Directorate filed charges against Raju and 47 other people, plus 166 companies, for offences under money laundering legislation.
⁶⁷
The charges included selling and pledging of Satyam shares at in?ated prices, receiving bonus shares under employee stock option schemes, and dividends on the inflated shares through inter-connected transactions involving 327 front companies ‘which were used to layer the proceeds of crime’.

GMR, GVK and Lanco

GMR has one of the highest profiles among the large Andhra-originated infrastructure companies, stemming from multiple interests in India and abroad. Founded by G. Mallikarjuna Rao, the chairman, it is a classic example of entrepreneurial drive mixed with effective project management and assiduous cultivation of contacts among politicians and bureaucrats. Rao started in the family’s jute and gold businesses and moved on to work in Andhra’s public works department before setting up a company to produce cotton ear buds, and then a brewery and a sugar mill. Next, he bought shares in the Bengaluru-based Vysya Bank, where he became chairman before selling his stake to ING of the Netherlands for a reported Rs 350 crores.
⁶⁸

He began in infrastructure with power plants in Tamil Nadu and Karnataka in the mid-1990s, and highway projects on the Golden Quadrilateral highway programme in the early 2000s. Mobilizing his widespread contacts, he obtained the contract to build and operate Hyderabad airport, with a 63 per cent stake in partnership with the Indian and Andhra governments and Malaysia Airports Holdings. The airport opened in 2008 and was followed by a concession for the New Delhi airport, plus airports in the Maldives (which it later lost in a contract dispute) and Istanbul. At its peak, GMR had 17 power projects operating or under construction, four airports, nine highways totalling over 700 km and interests in coal mining – all achieved in less than 20 years. This led the group to become over-extended by 2011 when it was also running into delays on various projects, and financial problems on the Delhi airport.
⁶⁹
It began shedding assets, including stakes in a Singapore-based energy business, the Istanbul airport, plus highway and power projects that were hit by delays
⁷⁰
– though it did pick up a new Philippines airport contract in December 2013.

The biggest controversy to hit GMR concerned the Delhi airport, which its consortium won after a contentious bidding process presided over by Praful Patel as aviation minister. The deal was criticized in a CAG report in April 2012, which estimated that there were losses in government taxes and passengers’ charges totalling some Rs 3,750 crore, partly caused by commercial development arrangements on the 4,800-acre site.
⁷¹
It also criticized the consortium’s right unilaterally to extend its 30-year concession for another 30 years, which had not been in the initial government plans but had been approved by Patel. These findings were challenged by GMR, which denied obtaining any special benefits.

GVK was founded by G.V. Krishna Reddy, who comes from a family that in the past has held top posts in the Andhra government, as well as carrying out irrigation and road contracts. He owns several of Hyderabad’s leading hotels run by the Taj group, and since the mid-1990s has developed power projects, the Bengaluru and Mumbai airports, and a special economic zone in Tamil Nadu. More recently, he has taken on two airports in Indonesia and bought a $1.26 bn controlling stake in Australian coal mines with plans for a total investment of $10bn to create one of the world’s largest thermal coal mining operations. Hit with heavy debts, the group has been selling stakes in its airport business and power businesses.

The third leading company, Lanco, is the most politically high profile of the three companies, having been led initially by Lagadapati Rajagopal, the Congress MP and a key YSR supporter. His brother L. Madhusudan Rao and brother-in-law G. Bhaskara Rao now run the group, which claims to be India’s largest private sector power producer and also has coal mining interests in Australia. To improve its image, Lanco moved its headquarters from Hyderabad to Gurgaon on the outskirts of Delhi but it became over-extended and lost large-scale projects for lack of funds, pulled out of others, dismissed a large number of employees, and formally announced a debt-restructuring process in 2013.

Some time in the future, Andhra’s years of fraud and deception will almost certainly be seen, in the traditions of early American business, as merely one of the stepping stones that a new economy takes when it suddenly enjoys unexpected riches, and the prospect of much more, if politicians are suborned, rules bent and the state cheated.

For now, the Andhra companies have fallen from favour with more conventional investors. Barring the sort of scandals that emerged with Satyam and the YSR investigations, they should recover though, even if it is some time before they and their business families can regain credibility with savvy Indian and foreign investors. Too many private equity and other firms have been caught by what looked like sound deals and honest entreprenreurs for this to happen quickly, especially with the current investigations and pending court cases. Yet one should never under-estimate investors’ ability to turn a proverbial blind eye when offered the prospect of quick profits – a thought that no doubt brings a glimmer of hope to such companies.

Notes

1
.   
http://ridingtheelephant.wordpress.com/2009/01/07/satyam%E2%80%99s-raju-lifts-the-lid-on-indian-corporate-fraud/

2
.   
http://ridingtheelephant.wordpress.com/2009/09/04/a-chief-minister%E2%80%99s-death-highlights-contradictions-of-indian-politics/

3
.   
http://ridingtheelephant.wordpress.com/2009/09/04/a-chief-minister%E2%80%99s-death-highlights-contradictions-of-indian-politics/

4
.   
http://ridingtheelephant.wordpress.com/2009/12/18/hyderabad-sinks-from-software-to-scams-as-greed-and-wealth-swamp-politics/

5
.   Conversation with JE, July 2013

6
.   Harish Damodaran,
India’s New Capitalists
, p. 92 and following, Permanent Black, Delhi 2008

7
.   Jawaharlal Nehru,
The Discovery of India
, p. 307
http://www.scribd.com/doc/31927774/The-Discovery-of-India-Jawaharlal-Nehru

8
.   Swaminathan Aiyar, ‘Declassify report on the 1948 Hyderabad massacre’,
The Times of India,
25 November 2012,
http://blogs.timesofindia.indiatimes.com/Swaminomics/entry/declassify-report-on-the-1948-hyderabad-massacre

9
.   ‘Rock Formations of Hyderabad’, Society to Save Rocks,
http://www.hyderabadgreens.org/rocks.html

10
. ‘Telangana is more advanced than the rest of AP’,
http://www.indian express.com/news/backward-telangana-is-a-myth/734444/

11
.
India’s New Capitalists
by Harish Damodaran p 121, Permanent Black, Delhi 2008

12
.
http://www.indianexpress.com/news/centre-says-a-guarded-yes-to-telangana/552114/

13
. ‘Jagan is president of YSR Congress’, 2 February 2011
http://www.thehindu.com/todays-paper/tp-national/tp-andhrapradesh/article1479332.ece

14
. JE, ‘India Calling: East Meets West at the Internet Frontier’,
Fortune
magazine, 17 April 2000.

15
.
www.aponline.gov.in/Apportal/HumanDevelopmentReport2007/APHDR_2007_Chapter4.pdf

16
. IPDL website
http://www.idpl.gov.in/about_us.html

17
. P. Sainath, ‘Why Farmers Die’, June 2004,
http://www.indiatogether.org/2004/jun/psa-farmdie.htm

18
.
http://planningcommission.nic.in/data/datatable/0512/databook_117.pdf

19
. P. Sainath, ‘Why Farmers Die’, June 2004,
http://www.indiatogether.org/2004/jun/psa-farmdie.htm

20
. ‘Reddy in the Rough’,
http://indiatoday.intoday.in/story/ys-reddy-guarding-off-corruption-charges/1/156002.html

21
.
http://ridingtheelephant.wordpress.com/2009/09/04/a-chief-minister%E2%80%99s-death-highlights-contradictions-of-indian-politics/

22
. 7 Sept 2009,
http://www.in.siasat.com/english/news/clp-claims-417-die-wake-ysrs-deathpolice-could-not-confirm

23
. 16 Sept 2009,
http://indiatoday.intoday.in/story/Families+paid+to+claim+YSR+shock+deaths/1/61917.html

24
. ‘Deifying YSR’, 14 September 2009,
https://www.google.co.in/search?q=deifying+YSR&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=? refox-beta&channel=f?b

25
.
http://ridingtheelephant.wordpress.com/2009/12/18/hyderabad-sinks-from-software-to-scams-as-greed-and-wealth-swamp-politics/

26
. A. Srinivasa Rao, ‘How Jagan Reddy became the richest Lok Sabha MP in India, and what is his real worth?’,
Mail Today
, 28 May 2012,
http://indiatoday.intoday.in/story/how-jagan-reddy-became-the-richest-mp-in-india-and-what-is-his-real-worth/1/197981.html

27
. ‘How did democratic values collapse?’, 15 June 2012,
http://millenniumpost.in/NewsContent.aspx?NID=4022

28
.
http://ridingtheelephant.wordpress.com/2012/06/15/andhra-pradesh-political-corruption-hits-sonia-gandhi-and-congress/

29
. 11 December 2010,
http://www.timescrest.com/society/mavericks-myth-money-4235

30
. ‘Jagan Mohan Reddy sent to jail as special prisoner’,
The Times of India
,
http://articles.timesofindia.indiatimes.com/2012-05-29/hyderabad/31887391_1_vijay-sai-reddy-sakshi-newspaper-odarpu-yatra

31
. ‘Andhra leader’s arrest shows CBI reform is essential’
http://www.business-standard.com/india/news/arrested-independence-/475828/

32
.
http://ridingtheelephant.wordpress.com/2012/06/15/andhra-pradesh-political-corruption-hits-sonia-gandhi-and-congress/

33
. 15 June 2012,
http://www.ndtv.com/article/south/election-results-jagan-sweeps-polls-will-be-chief-minister-in-2014-predicts-sister-231640

34
. 8 June 2012, ‘Costliest elections ever in State’,
http://www.thehindu.com/news/states/andhra-pradesh/article3501694.ece

35
. 12 June 2012,
http://www.ndtv.com/article/south/80-per-cent-turnout-in-andhra-pradesh-by-polls-jagan-mohan-reddy-on-trial-230500

36
. ‘Congress MP’s father killed in bomb blast’,
Indian Express
, 24 May 1998,
http://expressindia.indianexpress.com/ie/daily/19980524/14450754.html
and
http://www.hindu.com/2004/04/13/stories/2004041305380500.htm

37
. ‘Beyond Media Images’, a letter from YSR,
EPW
, 31 July 2004,
http://www.epw.in/system/files/pdf/2004_39/31/Beyond_Media_Images.pdf

38
. ‘Money backs “Son-rise” in Andhra’,
Mail Today
, 3 October 2009 (no internet link working)

39
. JE conversations with Hyderabad sources

40
. ‘Andhra Pradesh cancels land allotment to IMG’, IANS, 29 September 29, 2006
http://www.india-forums.com/news/business/3852-andhra-pradesh-cancels-land-allotment-to-img.htm

41
.
The Times of India
, 4 November 2012,
http://timesofindia.indiatimes.com/city/hyderabad/IMG-Bharatas-Rao-defends-MoU-with-state-govt/articleshow/17081258.cms

42
. ‘YSR’s “sheer size” of corruption shocked US diplomats’,
First Post
,
http://www.firstpost.com/politics/ysr-reddys-sheer-size-of-corruption-shocked-us-diplomats-85356.html

43
. Company website:
http://www.lancohills.com/

44
. Golden Mile plots sold at Rs 55,000 a square yard,
The Hindu
, 21 July 2006,
http://www.hindu.com/2006/07/21/stories/2006072120400400.htm

45
. P Sainath, ‘A short history of messing up’, 8 June 2012,
The Hindu
,
http://www.thehindu.com/opinion/lead/article3501815.ece

46
. AP government website for Jalayagnam scheme:
http://jalayagnam.org/index1.php?action=home

47
. ‘Jalayagnam delay: CAG raps State government’,
The Hindu
,7 February 2013,
http://www.thehindu.com/todays-paper/jalayagnam-delay-cag-raps-state/article4387789.ece

48
. ‘Rs 186,000 Crore Illusion’,
Down to Earth
, 15 July 2012,
http://www.downtoearth.org.in/content/rs-186000-cr-illusion

49
. TDP political party website:
http://www.telugudesam.org/tdpcms/scams/rajaofcorruption/Chapter16.pdf

50
.
http://www.thehindubusinessline.com/news/jagan-assets-case-india-cements-md-srinivasan-other-accused-appear-in-court/article5304110.ece