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Corporate Nov 5, 2012

Nusli Wadia explains his loss to Ambani in polyester war

By R Jagannathan

Now that crony capitalism is firmly on the nation's agenda as one of the evils leading to corruption, some of those laid low by it in the past are voicing their views on it.

Nusli Wadia, boss of the Bombay Dyeing Group, loser in the one of the earliest corporate wars that were decided not on the basis of market competitiveness but crony influence, spoke to Business Standard on this subject.

Referring to his battle with the late Dhirubhai Ambani over polyester in the 1970s and 1980s, Wadia said his group was currently smaller than it could have been because it did not play the policy manipulation game. In an indirect reference to Ambani, he said: "To some extent, yes (I did miss the bus), but that's because I chose not to manipulate the system....I want to live by a set of values that is integral to anything that we do."

Bombay Dyeing was one of the textile kings in the pre-Ambani era, and the battle with Ambani began when both looked at the sunrise industry of polyester for growth. Picture courtesy:ibnlive.com

Bombay Dyeing was one of the textile kings in the pre-Ambani era, and the battle with Ambani began when both looked at the sunrise industry of polyester for growth. That's where the conflict erupted into covert - and even overt - warfare.

Ambani was widely believed to have cosied up to politicians and bureaucrats in Delhi to tweak customs and import duties to his advantage. Wadia said as much to Business Standard: "All the policies related to polyester and the polyester chain during the eighties were manipulated. You had to manage the system for all licences."

Wadia had one specific instance to cite. He said when he had imported machinery for his plant, it was left to rot in the docks since the "import licence was not given to me."

To be sure, the war was fought on many fronts. Ambani fought not only Wadia, but also rival polyester makers like Orkay.

The war was also fought in the media, with The Indian Express leading a campaign against Ambani. The latter saw this as being the result of Wadia's influence with press baron Ramnath Goenka. The series of exposes against Reliance were done with the help of S Gurumurthy and iconic journalist Arun Shourie.

Wadia lost the war not only due to Ambani's clout, but for making some not-so-great choices with his polyester intermediates. For example, he chose to produce dimethyl terephthalate (DMT) when Ambani chose purefied terephthalic acid (PTA). In retrospect, PTA turned out to be a more efficient intermediate than DMT in the manufacture of polyester.

Moreover, the real battle that Ambani won was not just in the policy-making area, but in the capital markets. His vision of achieving global scale was a winner, and efficient project management gave him cost advantages that were unrelated to political influence alone.

In those days, the biggest cost for any industrialist was high interest rates. Indian banks and project financial institutions - IDBI, ICICI, etc - were charging extortionate interest rates at which no project could be viable without manipulating the system.

Ambani took a different route to cut his capital costs. He seeded the equity cult, and converted his huge debts at high premiums into equity. His effective cost of capital thus came to match the cost of comparative projects abroad.

And thanks to his equity raising abilities, his projects always were set up at the lowest cost.

An interesting contrast with Wadia is Ratan Tata - who too professed the same values of not wanting to grow by manipulating the system - but managed to salvage the 1990s and first decade of the 21st century with turbo-charged growth.

Luckily for Tata, he was not in direct competition with Ambani in any of the latter's focus areas. Wadia points this out in his interview. "Mr Tata was not in the sectors I was in during the eighties. The sectors I was in were unfortunate for me."

It would be unfair to dub Wadia's views as a loser's rant - for history is now moving in his direction, towards greater transparency and clean competition.

He has proved his worth by fighting in the low-margin business of aviation and managing to hold his own against both Indigo and Jet even as Kingfisher went down.

There is, however, one area where both Wadia and Ambani seem to have given little thought: both had two sons, and both seem to have thought little about succession.

Ambani left no will, and left it to his sons to battle it out and work out an arrangement on who gets what. Wadia told Business Standard that he was yet to think about succession and noted that his sons - Jeh and Ness - were working well together.

In succession at least, one hopes Wadia does not make Ambani's mistake by leaving his succession plan unclear. He is 68, and the time for thinking about is now.

On the larger issue of probity and crony capitalism, history is on Wadia's side now.

Do read the full interview here.

(Disclosure: The Reliance Group has an indirect stake in Network18, publisher of Firstpost.)

by R Jagannathan

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