Sell me if you can

A STAKE in a Formula One team, four planes and a slew of posh hotels including the Grosvenor House Hotel in London: the troubles of Sahara, an Indian conglomerate whose founder has been in and out of prison, has resulted in a neat pile of trophy assets for the discerning buyer. The often unmanageable debt levels at India’s largest firms now mean plenty of less glamorous assets are up for grabs, too, from cement and steel plants to airports and toll roads. Once adept at giving their bankers the runaround, tycoons are now less able to fend off pressure to pay down debt with sales of prize assets.

Given how indebted India’s largest firms are—ten prominent ones taken together have interest payments bigger than their annual profits, according to Credit Suisse, a bank—there should soon be a long list of items on the block. A few big groups have already raised fresh funds by selling off parts of their businesses. Analysts at State Bank of India reckon that deals worth 2 trillion rupees ($29.8 billion) have been signed or are on the way, enough to make a dent in the total debt of the companies involved, which amounts to around 10 trillion rupees.

So far, more deals have been rumoured than actually completed (the Qatar Investment Authority is poised to snap up the London hotel). Many of the investment bankers who had hoped for fat mandates worry that the founder-shareholders who dominate India’s business scene (and its debt) are keener to talk about break-ups than actually preside over them. Others prefer to flog overseas trophies, for example a stake in Sabiha Gökçen airport in Turkey, sold by GMR, an infrastructure group, to a Malaysian rival.

But a sea-change is on its way. Formerly, company founders had the clout to keep their empires intact. They could put in a call to their pals in government to keep down any pesky banker demanding repayment. India had no proper bankruptcy regime, so promoters, as company founders are known, could effectively blackmail banks with an implicit threat: keep funding me or face years of litigation as the business implodes.

Banking reforms championed by Raghuram Rajan, the departing central-bank governor, have made such tactics harder. The government passed a new bankruptcy law in May. It will mean that banks should from next year onwards be able to foreclose on insolvent firms. A new mood in the offices of regulators and government officials is also emboldening bankers to recoup dud loans rather than, as in the past, extend new ones. Better still, under Narendra Modi, India’s prime minister, tycoons appear to have lost their direct access to ministers’ offices.

Even with the coming changes, India is far from using an efficient, American-style procedure in which over-indebted firms are swallowed by their lenders and then disposed of, either whole or in parts, to new owners. One reason is that buyers are scarce. A web of regulation makes it hard in India to run the private-equity firms that could smooth the process. And promoters are hesitant to swoop for each other’s assets, bound as they are by long histories of their families doing business together (and, often, by marriage, too).

Much of corporate India’s unsustainable debt is also in cyclical industries such as steel or mining. Shareholders often hang on for far too long hoping that rising commodity prices might resurrect an ailing firm’s fortunes. Meanwhile, tycoons are good at making money from the businesses they own even when no profits are forthcoming. One ruse is getting firms to overpay for rent on a head-office building ultimately owned by family members.

Nor will asset sales be a panacea. If a profitable part of a conglomerate’s business is sold to raise cash, its profits won’t be available to service what remains of the debt, so leaving both bankers and businessmen only a bit better off. But it is surprising even to see the deals happening—and that a regulatory change is already having such a visible effect.