The slide from dream project to basket-case is complete. Creditors are now after Bachchan's Juhu bungalow and other property, as ABCL ducks under the bankruptcy law.
The public sector Canara Bank has sought the Mumbai High Court's permission to attach Pratiksha to recover its dues. Canara Bank has charged Bachchan and his wife Jaya for the non-payment of bank advances provided by way of open-cash credit facility tot-alling Rs 2.4 crore, overdraft against book debts amounting to Rs 5.6 crore, foreign letters of credit worth Rs 2.5 crore and guarantee facility to the tune of Rs 3.5 crore. The money was lent to Amitabh Bachchan Corporation Ltd (ABCL), with the Bachchans as guarantors. India's first entertainment company had planned to notch up Rs 1,000 crore by way of turnover by the year 2000. Instead, its net worth wiped out, it has applied to the Bureau for Industrial and Financial Reconstruction (BIFR) to be listed as a sick company.
And it's not just Bachchan's landmark house that might come under the court receiver. Canara Bank has also moved the court on Bachchan's other personal properties. Two flats in Mumbai given as collateral—located in Bhanu Apartments at Ruia Park Road, Juhu—might also come under attachment. Although Canara Bank officials refused to speak to Outlook ("The general manager concerned is on leave"), its solicitors, M. Dhruva & Co, revealed that the bank had no other recourse left as ABCL was trying to hide behind the BIFR Act. And once a company is admitted by BIFR as a sick company, it becomes extremely difficult for creditors to collect their dues (see Another Indian Holy Cow in this issue). "Though ABCL can take shelter under the BIFR net, its guarantors cannot," say the solicitors. At today's market rates, Pratiksha, it is estimated, could fetch around Rs 12crore.
The entertainment company was referred to the BIFR on March 22, five days after the appointment of the court receiver for taking possession of the company's assets. According to senior BIFR official J.B. Sharma, the bureau will assign a duly constituted bench this week to debate if the company can be termed "sick".
When Amitabh Bachchan decided to go corporate, finding a brandname was the least of his problems. ABCL took on the mantle of branding Bachchan's personality for marketing products and services covering the entire gamut of the entertainment industry—from film production and distribution, audio cassettes and video discs, production and marketing of television software, media buying to event and celebrity management.
So in January 1995, when the superstar roped in investment banking company Kotak Mahindra to present what appeared to be a blockbuster of an investment opportunity, corporates and financial institutions picked up 15 per cent of the company's equity at a premium of Rs 70 per share. Soon after, several new films starring the Big B were announced. Film distribution rights, television serials, the contract for organising the Miss World contest in Bangalore: ABCL's rise was meteoric. Even public sector banks like Canara Bank and Central Bank of India participated in the company's second private placement issue, shelling out Rs 95 for every share in April 1997. ABCL was on a roll.
The crash came quicker than anyone had expected. For the year ended September 30, 1998, ABCL piled up accumulated losses of Rs 70.82 crore, well above its Rs 60.52-crore net worth. The company's board, in February this year, passed a unanimous resolution that "in view of the accumulated losses being in excess of the company's net worth, based on the audited accounts for the year ending September 30, 1998, the company has prima facie become a sick industrial company within the meaning of section 3(1)(O) of the Sick Industrial Companies (Special Provisions) Act, 1985."
Net profits during 1992-93, 1993-94 and 1994-95, which stood at Rs 3 crore, Rs 19 crore and Rs 14.40 crore, were wiped out the following fiscal when ABCL ran up losses of Rs 36.08 crore. Its misery continued in 1997-98 with losses of Rs 41.49 crore. As on March 31, 1998, the company's total liabilities to its various debtors were as high as Rs 80 crore. At least six parties have now taken ABCL to court claiming unpaid dues.
After hearing the two sides, the arbitrator passed an award on April 27, 1997, upholding UTV's claims. The award directed ABCL to pay up the claimed amount plus 18 per cent interest from December 10, 1996, and Rs 40,000 as arbitration cost. When ABCL failed to pay, UTV applied for attachment of ABCL's assets.
Earlier, in August, a South African firm called Combined Artistic Productions (CAP), which had executed some of the work connected with the Miss World pageant, 1996, had filed a winding-up petition against ABCL. CAP also sought an interim order from the Mumbai High Court seeking to restrain ABCL from, in any manner, transferring, selling, alienating or disposing of its assets, pending the hearing and final disposal of the petition. CAP is claiming dues of $41,207 (Rs 17.3 lakh) plus interest.
Two more petitions were filed last year at the Mumbai High Court by Impex Enterprises and Babushka Electronics. Prasar Bharati has also slapped notices on ABCL for default in payments running up to Rs 18 crore. This is due to ABCL's inability to market the Miss World telecast, Chitrahaar and Rangoli to advertisers.
Amitabh Bachchan was perpetually out of his office and residence "on a shoot" when Outlook attempted to get a response from him. No one at ABCL office responded either. But in interviews, Bachchan has been blaming the "professionals" running ABCL for the company's woes. However, according to merchant bankers tracking ABCL's progress, it was the Bachchans who actually brought a potentially good idea down to its knees.
Bachchan got a good group of professional managers in place: young managers who had no experience in the entertainment business but had successful stints in companies like Hindustan Lever, ANZ Grindlays and ITC. The company moved fast. Branches were opened in Chennai and Hyderabad, because Tamil and Telugu films were seen to be as lucrative as Hindi films. And of course, ABCL set up every division that it said it would. In the first two years alone, 15 films were launched with costs per film ranging from Rs 3 crore to Rs 8 crore.ABCL also distributed hit films Bombay and Bandit Queen. It managed BPL Dandia and Miss World, while on the TV commercial-time side, the group did business of around Rs 50crore.
This rapid growth, however, created a capital problem. Says a banking analyst, "It looks like their pace of growth was just not in proportion to the size of their pockets." Though, for the first time in the film industry, ABCL managed to convince banks to lend it money—around Rs 12 crore—capital was becoming a major constraint. The company began negotiating with international advertising major WPP to sell 10 per cent of the company, hoping to raise around Rs 40 crore. It also wanted to raise Rs 150 crore from the public in 1995-96. Nothingmaterialised.
Within the company, there existed a mismatch of cultures. The professional managers could not deal with the informal functioning of the Rs 3,000-crore Indian entertainment industry. Saraswati Audio Video, a company fully owned by Jaya Bachchan, was amalgamated with ABCL for Rs 7 crore in 1995. "By any formula, the actual value of the company could not be more than Rs 1 crore. By overvaluing the company, the Bachchans made it look like they were actually investing Rs 7 crore in ABCL," says one ex-ABCL executive. The Bachchans are also reported to have taken out the entire Rs 15 crore profit the company earned in the first year and extended it as loans and advances to friends and two of their privately-held companies. The star duo are also said to have placed 87.5 lakh shares of the company with friends and relatives at par. "How can they justify the sale of equity at Rs 10 to friends and relatives while the company has privately placed equity at Rs 70 and Rs 95 respectively in two rounds of private placements?" asks the former executive.
ABCL may have also grossly overvalued their prime assets, the personalities of Amitabh and Jaya Bachchan. The company entered into a contract with the couple, agreeing to pay an annual fee of Rs 10 crore and Rs 3 crore respectively for 10 years. But ABCL had only limited success in selling these two brands. Even the Rs 8-crore contract for Bachchan appearing in BPL ads has not been renewed. In January, the consumer electronics group washed its hands of Bachchan. "The group has decided against celebrity endorsements because it just did not get them the mileage they wanted," says Ajit Hoon of Dhar & Hoon, which created the first BPL-Bachchan commercials.
The faecal matter finally hit the rotary blades with the Miss World extravaganza. ABCL was counting on it to take it into the international league. After the fiasco, things were never the same between Amitabh Bachchan and his managers. The impasse finally resulted in CEO Sanjiv Gupta putting in his papers, followed by Harish Chawla, general manager for film distribution, Makrand Bhambrey, vice-president for television, Manohar Arcot, general manager for HRD, and S. M. Suku, vice-president, marketing.
Finance companies like Kotak Mahindra which had an estimated exposure of Rs 10 crore now started pressuring ABCL to pay up by liquidating Bachchan's stake in IPCA Laboratories, a Mumbai-based pharmaceutical firm in which the Bachchans held a 36 per cent stake. This the Bachchans did. They also started looking for someone to pump in cash to rescue ABCL. The Hyderabad and Chennai offices were shut down. Late in 1997, strong rumours surfaced of the Bachchans selling their 40 per cent stake in ABCL to Kenya-based tycoon Ketan Somaiya for Rs 25 crore. Somaiya had earlier bought the Bachchan-owned TV Asia, a television company catering to ethnic channels abroad. But the ABCL-Somaiya deal doesn't seem to have come through. (Somaiya is now trying to hawk TV Asia to Zee TV's SubhashChandra.)
Last year, Bachchan sold his farmhouse outside Delhi. There were also rumours circulating that the Nandas of Escorts (Bachchan's daughter Shweta is married to Nikhil Nanda) would be infusing funds into ABCL. Meanwhile, ABCL has shifted its offices to the Sahara group office complex to reduce costs. There are also unconfirmed reports that Sahara has acquired a stake in ABCL, although Bachchan says that Sahara is just "helping him out" as Sahara supremo Subroto Roy is a good friend. In return, Bachchan apparently visits selected towns to promote Sahara's parabanking schemes.
Meanwhile, all the frustrated debtors of ABCL are looking forward to the court's decision on Canara Bank's petition. If the court allows the attachment of the Bachchans' properties under the guarantors' clause, many aggrieved parties will immediately flock to court, clamouring for unpaid dues.
And that could be a real tear-jerker. This time for real.
With Shantanu Guha Ray in Delhi