Monthly Archives: July 2021

Five years ago, India came up with a legal answer to itsperennial economic challengeofrescuing the money stuck in zombie firms. Unlike China, which hasthe cushion of high savings, Indias inefficient use oflimited domestic capital has meant a chronic inability to put its swellingranks of youthto work. After toying with the ideafor more than a decade, the solution New Delhi hit upon was a modern bankruptcy code.

The numbers have beena mixed bag.According to an analysis by REDDIntelligence, of the 4,300-plus stressed debtors that have been taken through the 2016 corporate insolvency law, 48% were liquidated, half of them under 314 days. Of the 13% that got sold to bidders, half exitedbankruptcy in less than 425 days. These, as the REDD researchers note, arent bad outcomes, considering that wait times previously werefive-years-plus.

However, if the insolvency law did indeedlead to timely extractionof meaningfulsums, one shouldalso see redeployment of credit in new ventures. The evidence on this front is weak. At 6%, loangrowth is anemic.Companies dont want to borrow even at negative real interest rates; corporate leverage is at an all-time low of 0.46 times equity, according to the Boston Consulting Group.

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Incomplete bankruptcy reform isntthe only reasonIndian banks arent lending more to new firms,choosing instead to finance unsecured personal credit, which doesnt create many more new jobs. Over the past year, itcouldbe seen as a confidence issue. As a deadly second bout of the pandemic recedes, firms probably need assurancethat the economy wont be hit by lockdowns again. That would require a far greater proportion of the population to be fully vaccinated than the less than5% at present.

Yetthe bankruptcy code doesnt deservethe full benefit of the doubt. Its biggest failing is its institutional infirmity. Leaving aside a fewbig-ticket sales, mostly of steelmakers such asEssar Steel India Ltd.,the recovery rate for creditors has been just24%, according to Macquarie. While India is perhapsable to extricate capital fasterthan before, it still cant get much out of dead firms.

Even the insolvency tribunal issurprised that metals magnate Anil Agarwal is paying almostnothing to wrest control of Videocon Industries Ltd., after creditorsaccepted just 4cents on the dollar for their 648 billion rupee ($8.7 billion) exposure to theconsumer-appliance maker and its 12 group companies. Bankers to Siva Industries and HoldingsLtd. approved a one-time settlement with thecontrolling shareholder of the investing firm, taking a 93.5%hit on theiroutstanding claims of $650 million.In the case ofRuchi Soya Industries Ltd., lendersfirst agreed to a harsh haircut. Then they gavemoneyto Yoga guruBaba Ramdevs Patanjali AyurvedLtd.to take over the bankrupt edible-oil maker.

The low recovery rate isntdoing any favors to Indias state-run banks, which hold most of the souredloans. Severalof them will now own astake in Jet Airways India Ltd., which last flew more than twoyears ago. The airlines landing slots at airports havebeen given to other carriers, andthe pandemic has ravaged the economics of aviation.All thisdrama to recoup5% of loanswhen creditors had only to oustNaresh Goyal,the founder of what was once Indias dominantairline, in time. They didnt.Even now, Vodafone Group Plcs India joint venture is struggling to stay afloatbecause of extractive government demands, but bankers arent doing much to protect their exposureto the debt-laden telecom operator.

Political constraints have never allowed Indias publicinstitutionsto save capitalism from powerful capitalists, something that a tough bankruptcy law was supposed to change. It hasnt.Soemployees and vendors suffer, asdotaxpayers who fillstate-run banks capital hole. For nine years, Punjab National Bank, the second-largest of them by assets, has only fleetinglytraded above its book value, a reflection of what investors makeof theasset quality of public-sectorlenders.

In hindsight, giving poorly governed state-runbanks the power over assets was a bad idea. A U.S.-styledebtor-in-possession bankruptcymay have been far more suitable to Indias on-the-ground reality. Abusingproductive capital to benefita small, politically connectedcapitalist class has exacerbatedunfairness, and loadedthe dice against workersin a labor-surplus country.

AsObservatoryGroup analyst Ananth Narayan notes, Indias employment-to-population ratio, which was a steady 55% in 2005, has fallen to 43%. Bangladesh and Vietnam have fared better. Not all of the blame for inhibited employment can be laid on the doorstop of a flawed bankruptcy law. By ignoring low-skill textile and shoe manufacturing and overemphasizing high-skillsoftware, India has scored an own goal.

Still, thelarge-scale gaming of insolvencyresolution hascost India. Even before the pandemic, the financial system was creaking, Now, its just being kept in a holding pattern. Banks have the assurance ofgovernment guarantees onloans to pandemic-hit small businesses. The interest they need to pay savers is also being kept artificially depressed by the central bank in the face of persistently stubborn inflation. Even then, 9.8% of their loan book could sour by March 2022, the central bank has warned. The plan now is to shift at least $11 billion in dud corporate loansfrom commercial lenders to a newly created bad bank.

A junkyard for firms that have very little salvageable capitalwont do much for newinvestments. Rehabilitating assets that still have some value will require an urgent fix to the law. A bankruptcy salon offering90% haircuts is a sad joke on on Indias taxpayers, savers and workers.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:Andy Mukherjee at amukherjee@bloomberg.net

To contact the editor responsible for this story:Patrick McDowell at pmcdowell10@bloomberg.net

Before it's here, it's on the Bloomberg Terminal.

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India Needs a New Round of Bankruptcy Reform That Won't Stiff Creditors - Bloomberg

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The COVID-19 pandemic was not kind to car rental company Hertz, at least not at the beginning. When regular travel pretty much halted in the early part of 2020, Hertz filed for Chapter 11 bankruptcy. But as with so much during the pandemic, things evened out and then started to turn around for Hertz, and the company announced last week that it has emerged from bankruptcy as "a financially and operationally stronger company that is well positioned for the future."

As a customer loyalty move, Hertz said it will upgrade customers who join its rewards program, Hertz Gold Plus Rewards, to Five Star Elite through the end of 2021, and will offer double points on rentals by existing members through September 30.

The rebound was indeed dramatic, and the group of investors that ended up providing Hertz with $5.9 billion in capital was led by Knighthead Capital Management and Certares Management. Each of these investment firms will now get two representatives on the new Hertz board of directors, according to the Wall Street Journal, which also reported that one of the board's new independent directors is former Ford CEO Mark Fields.

The Journal called the bidding war for Hertz that played out this past May a "rarity in corporate Chapter 11 cases." In fact, the paper reported that in April, Hertz was telling its shareholders that they should expect to get nothing for their stock. But people were optimistic enough about Hertz not only to bring the company out of bankruptcy but to also drive the share price from under $2 during the pandemic to just under $9 this past week. Hertz shares, which trade on the over-the-counter market, were trading at over $15 before the pandemic, according to the New York Times. Hertz common stock started trading under a new ticker symbol, HTZZ, on July 1.

One reason Hertz managed this turnaround was the fact that it sold more than 200,000 of its 650,000 vehicles during the pandemic when demand for used cars was strong and Hertz wasn't earning money from at the time, since people, for the most part, stopped traveling.

"When the economy began to show signs of recovery earlier this year, we were perfectly positioned to drive a competitive process that would maximize recoveries," outgoing board chairperson Henry Keizer said in a statement. "The resultpaying our nearly $19 billion of creditors in full and returning substantial value to our shareholdersis remarkable."

Looking forward, the new Hertz will look a bit different than the old, bankrupt company. The new board chairman, Gregory O'Hara, told the Journal that new customer service models will be coming that eliminate the need for people to stand in line to get the keys to a rental car. He also said that Hertz will add more electric and alternative-fuel vehicles to its fleet. Hertz is now confident enough in the changes it has gone through, including reducing costs, negotiating cost concessions at some airport locations, and selling its Donlen fleet leasing business for $891 million in cash, mean Hertz is "on track for strong financial results in 2021."

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Hertz Exits Bankruptcy and Expects 'Strong Financial Results' in 2021 - Car and Driver

CNN Many consumer are still buying cars, despite the global shortage of car computer chips. General Motors reported a 40% jump in sales in the second quarter, compared to last year. The company also showed a 7% increase, compared to the first quarter this year. Toyota sales were up a whopping 73% compared to a year ago, and 14% compared to the first quarter.

Hertz has emerged from bankruptcy just in time to benefit from the rebound in travel across the U.S. The car rental company announced its bankruptcy has officially ended after more than a year. Hertz filed for Chapter 11 bankruptcy in May 2020, and sold more than 180,000 of its vehicles by the end of 2020, just as the prices of used cars climbed from a shortage of new cars.

Both the roads and the skies are expected to be busier than ever this Fourth of July. AAA says more than 635,000 South Carolinians are expected to travel for the holiday weekend. Thats up more than 35% from last year, amid the pandemic. Overall, more than 47 million Americans are expected to travel this Independence Day weekend.

ABC NEWS It is prime grilling season, especially heading into this holiday weekend. How do you know if your grill needs an upgrade? ABCs Dierdre Bolton has the details.

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Consumer News: GM reports jump in car sales, Hertz emerges from bankruptcy and more! - Abccolumbia.com

In todays automotive market, Ford Taurus is not your flashiest vehicle out there, but the history it carries with it is quite impressive. The Taurus car had a development budget of $3 billion and managed to save the company from bankruptcy in the early 80s.

The original Taurus family sedan was a godsend in 1980 when Ford had incurred $3 billion in losses and was desperate to climb back the stairs of success. In a final and desperate attempt to recover, Ford invested the equivalent of todays $7 billion in a new, revolutionary design that gave birth to the first generation of Taurus vehicles.

The design of the Taurus was so groundbreaking that the 1986 Ford Taurus was featured in every movie depicting the future.

The company had so little faith in its new endeavor that it even kept its LTD mid-size range in production, just in case their new plan failed. But it didnt. Not only that, but it even became the bestselling car in America back then.

However, the so-called jelly bean or flying potato car didnt come with the most performance-orientated features. Hence the Taurus SHO was developed, as the performance version of the Taurus, with a Yamaha-built V-6 engine, four overhead cams, and 24 valves. The SHO used a Mazda-sourced 5-speed manual and was the most powerful front-wheel-drive sedan in the world.

But the SHO didnt have the success of its predecessor, with the original Taurus selling in 400,000 units per year. The SHO didnt even manage to get close to the companys target of 20,000 cars sold annually. Well let you find out for yourself why, in Jason Cammisas Revelations video.

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A Lesson on the Flying Potato That Saved Ford From Bankruptcy in the 80s - autoevolution