Supreme Court of India overturns judicial decision in favor of JSW Steel
Morning! Let's dive into today's top story that promises to shake up corporate deals in India.
Sabotage the deal
In an unexpected move last Friday, the Supreme Court torpedoed JSW Steel's acquisition of Bhushan Power & Steel - a four-year-old done deal - and rejected their Rs197bn ($2.3bn) insolvency resolution plan for Bhushan. This setback for JSW Steel is a telling reflection of the business landscape in India.
A quick refresh: in 2017, Bhushan was among the first 12 companies flagged for insolvency resolution under a new law. JSW Steel was among the groups interested in the acquisition (alongside Tata Steel and Vedanta), and their proposal was accepted in 2019. The final Bhushan acquisition occurred in 2021 and it's been JSW's subsidiary ever since. Bhushan is a crucial piece of JSW's expansion strategy in eastern India, accounting for nearly 15% of their production capacity.
But with the court's ruling, years of decisions and investments are thrown out the window. Jindal will have to sever ties with Bhushan and let it wallow as a struggling steelmaker saddled with $5bn of debt. The ruling also impacts various stakeholders, including public sector banks that may have to return the money JSW Steel coughed up to settle Bhushan's debts.
The government is considering their response. With this court order not directed at them, it will be interesting to see what they've got in their arsenal. JSW Steel is mulling over possible next steps. Their stock plunged 5.5% on Friday and slipped a further 1.76% yesterday.
Taking sides in this mess isn't easy. JSW Steel's actions during the acquisition were deemed riddled with "an entire spectrum of lacunae and flaws," according to the court. It's worth noting that the company wasn't stopped from wrapping up its acquisition amid ongoing legal battles over the past seven years. At the same time, overturning a major multibillion-dollar investment after such a long period is head-spinning.
The ruling sets a questionable precedent, casting doubt over future liquidations for all acquisitions. Companies may be dissuaded from making strategic decisions, given the risk that an entire deal could be annulled years after the fact. The case also raises serious concerns about the insolvency and bankruptcy code, intended to help troubled companies attract fresh ownership and reduce the burden of bad loans on banks. This situation calls for a rebuild of the regulatory and judicial foundations surrounding the code from the ground up.
So, what are your thoughts on this? Drop a line to indiabrief@our website.
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Diamond panic
India's gemstone and diamond industry, already struggling with dwindling demand for the last few years, has been hardest hit by Trump's tariffs. Gemstone and jewelry is the third-largest export category for India, with the US accounting for over 30% of Indian gem exports.
The downturn continues, with sales declining by another 10% in the last fiscal year. The atmosphere in Surat, India's main hub for gemstone and diamond polishing, has been gloomy for the past couple of years, courtesy of rising suicides among out-of-work laborers and a general economic slump.
Trump's tariffs are the final blow. With the industry virtually at a standstill, shipments through Antwerp's diamond trading center are down to a mere 15% of usual levels after the tariff announcements. Even if India can secure a reduced tariff for gemstones in a future bilateral trade agreement, the industry's future does not look bright.
For growth, exporters need to tap new markets in the Middle East and smaller pockets of affluence. They're also working on strengthening their domestic market. This strategy sounds promising on paper but may not be easily applicable in real-world scenarios. The diamond industry is trying to preserve its sparkle, with glitzy ads in papers and eye-catching billboards promoting natural diamonds as the "real thing." While this may sway some buyers, the growth in demand for cheaper lab-grown gemstones among the younger generation is set to soar, leaving the big players in Surat with a lot to ponder.
Donald Trump's tariffs could lose their sting: De Beers' chief predicts the removal of tariffs on precious stones.
The numbers game
Warren Buffet, age 94, has chosen Greg Abel to replace him at the helm of Berkshire Hathaway. Here are some interesting numbers about the company:
- The company's size: $1.2tn
- Cash holding: $350bn
- Buffet's 60-year return: 5.5 million percent
My creed
"Fill your days with tasks that energize you. Follow your passion. I play tennis almost every day. I swim, I enjoy time with my family, and these moments keep me fueled. When your energy levels are high, managing everything else becoming easier."
- Vidit Aatrey, CEO, Meesho
Each week, we invite a successful business leader to share their guiding principles for work and life. Eager to know what your boss is thinking? Nominate them by replying to indiabrief@our website*.
Quick question
Is the recent caste census a good idea? Weigh in with your thoughts in our poll here.
Buzzer round
Last Friday, we asked: who are the "fish hippies"?
Correct Answer: Bodø/Glimt, the Norwegian football team making waves in this year's Europa League. The sobriquet "fish hippies" is inspired by their hometown's cod fishing heritage.
Yaman Singhania was the first to correctly identify the answer. Ram Teja and Aniruddha Dutta followed closely in second and third place. Good work, champions!
Thanks for reading. This week's India Business Briefing is edited by Tee Zhuo. Have any feedback or suggestions, or just want to chat? Email us at indiabrief@our website.
- The Supreme Court's decision to reject JSW Steel's insolvency resolution plan for Bhushan Power & Steel has cast a shadow over future investments, as it questions the security of business deals in the Indian economy.
- The impact of this ruling extends beyond JSW Steel, affecting various stakeholders, including public sector banks and the broader financial market.
- The government is weighing its options in response to the court's ruling, while JSW Steel is considering its next steps in this uncertain business landscape.
- The court's decision to overturn a major multibillion-dollar investment after such a long period sets a questionable precedent, potential hindering future strategic business decisions and investment in the economy.
