"Switching Off Does Not Make The Problem Go Away"

The ensuing two years were the toughest of my life because unexpected things happened. In the first board meeting, the auditors insisted we consolidate the results of the loss-making 50:50 forex and retail broking JVs. We told them it was a non-strategic JV and would resolve it soon. Fortunately, since we had a common partner in both the JVs, we sold the stake in the forex venture back to the partner and, in turn, bought them out from the retail broking business, which we later shut down. In due course, the asset advisory business, too, was wound down. A subsidiary NBFC, which was not a capital efficient structure, was merged in Feb 2011. 

Even while working on the structural issues and complex JV counter-party negotiations, I had started thinking of which new businesses need to be launched and was hiring accordingly. The idea was to mute wholesale lending and use the NBFC to build new retail businesses. This way the proportion of the book would change. Every Saturday, I would meet and interview people at the Four Seasons Club. I would rigorously scribble plans on pieces of paper and excite the candidates. I hired some great professionals in Apul Nayyar and Pradeep Natarajan among the many I met. Some other candidates from established institutions felt it was too risky, no matter how many stock options I offered! At that point in time we were borrowing at high rates of interest, and figuring out ways to get lines of credit to keep growing. 

While the transformation was still in progress, the promoter expressed his intent to exit. Though not unexpected, it was much harder to deal with the development than what I thought – we had to scout for a private equity investor willing to pay Rs.800 crore-1,000 crore! Raising such an amount even in a bull market would be difficult. But in our case, after a brief lift in GDP in 2010, growth started precipitously falling between 2010 and 2013 and it turned out to be the worst time to approach the market. I tried a Rs.300 crore QIP for equity but it failed as investors felt I had to build something tangible to raise capital and merely plans weren’t enough.

Though a pretty big sum to ask for, I believed my experience, background, and the positioning of the business in an under-served area would carry me through. While Morgan Stanley had the mandate for the deal, I, too, met a lot of investors through reference and contacts. But it turned out to be a beauty pageant where we had strut ourselves and our strategy and, in some instances, even our newly formed teams, over and over again to new investors.

While there was never a clear ‘no’ from any of the funds, they weren’t saying ‘yes’ either. Bain made an offer that was reasonable by their reckoning but not acceptable to the existing promoter. (As it turned out eventually, they were not very much off on the price). Some discussions would end up with “the idea sounds good. You can come down and meet our global head when he comes in a couple of months”. I wasn’t getting the feeling it was heading well. A calm “couple of months” for them sounded like a tense “couple of years” to me.

Even while I was pitching to investors, news started popping up at regular intervals in the media that FCH was up for sale. That threatened to move us off the rails. We had lines of credit from lenders and once the news came out that FCH was on the block, the lenders turned wary. One foreign bank, which had promised a cheque of Rs.300 crore backed out after a story in a leading publication in early July 2011. They said it was difficult to proceed after the report.

Our credit rating was only A+. We were firefighting for a year with news flying thick and fast. If a CNBC or ET Now anchor or coordinator called early morning for a “byte”, I knew some article had appeared! I didn’t duck them because that was the only way to speak to many stakeholders at large- bankers, employees and shareholders. New hires were having second thoughts, and it was a herculean task convincing them to join in these circumstances. But I told a lot of probables that this was the moment to join as we were just starting out and we did hire enterprising people from Citi, Barclays, Stanchart, HDFC Bank, and also some ex-ICICI Bank employees.

But raising money was proving to be tough. Our NCD issue failed to garner enough interest. We even tried a QIP and I went on a roadshow to London to test the waters, but as no one committed, buried the plan.

The turn of events began taking their toll on me. At home, I would pace around the room in the dead of the night, go off to sleep, wake up again and walk around, mentally constructing scenarios. All talk was leading to nowhere, but I had to face the day. I read in a case study at Harvard many years ago that President Kennedy went for a swim during the Cuban war to calm himself, I thought so should I! So I tried coming home for lunch for a few days, and even played the guitar in the afternoon to calm down. Soon I realised that all these theories were rubbish…maybe it worked for Kennedy, but it wasn’t working for me. I had to face it. By switching off, the problem would not go away. I had to deal with it by thinking about it 24x7, and by meeting people and keeping my antennae on. I have to admit that even my zeal for running the marathon (I had completed seven 42-km marathons before 2011) suffered as late night dinners and frequent travel became the norm.

I did what I could to keep the momentum going, I had a new team and loyalties weren’t built yet. So I never shared my struggles with my colleagues at work. In hindsight, I don’t know if it was a good or a bad decision. I had to find ways to keep the business ticking...I had to show proof of concept to investors. Meanwhile we had built a unique statistical model of lending small ticket loans combining scorecards, bureau and fraud predictors. Some prospective investors were curious but not sure. We needed a growing loan book, and increasing profitability. For this, we needed funds!

This is the second part of a three-part series. You can read the first part here and the third part here.