Shoes, chappals, and a broom - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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29 DECEMBER 2008

Muntadhir Al-Zaidi, the Iraqi reporter who threw his shoes at President George Bush during Bush’s farewell trip to Iraq, is doing his bit to revive global demand. And creating a brand name for himself.

While there is a debate about where his shoes were manufactured (the claimants are China, Iraq, and Turkey) note how Indian shoe manufacturers have not put in their claim - yet more proof of the relative de-linking of India from the global economy. Another testament to quality - one that the advertisers will no doubt hide - is that Al-Zaidi’s brother confirmed that the reporter did not wear his "good" shoes and changed into the "other" shoes before he set out on his mission. Even anger has a cost - why waste good shoes on a bad person? So this can be the ad for the shoe manufacturer: "Not good enough for you to wear, but good enough for him!"

But the fact is that the Al-Zaidi shoes are in demand in the Middle East. Along with posters of President Bush. It will not be long before some bright entrepreneur reinvents the game of darts and creates a game called "Sho-ush" - shoes for Bush. Little plastic shoes made in China, priced in US Dollars, and packed neatly in different shades of green with a poster of Bush to hang on a nail.

Will it sell? Sure, the endorsers of "Sho-ush" are some pretty well connected people. CNN reports that Ayatollah Ahmad Janatti told his congregation in Tehran that "The shoe intifada (rebellion) in Iraq should not be overlooked easily. Well done to the Iraqi journalist for throwing the shoes at the U.S. president." Speaking to worshipers at Tehran University, Jannati labeled the shoes "more valuable than crowns, medals and signs" and believes they should be place in an Iraqi museum.

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So London may boast of the Crown Jewels, and Iran can boast of the Al-Zaidi shoes.

Has the fever died down? Nope - not as yet. On December 26th, Iran's Revolutionary Guards Corps sponsored shoe-throwing events near Tehran University and the U.S. Embassy. CNN reported that "about 70 people stopped to toss their shoes as they walked to Friday prayer meetings on the main campus of Tehran University". This is not a dead cat bounce of a dead stock market: this is for real.

In fact, while the global art market - and the 3-kisses-on-the-cheek Indian art market - is heading for a collapse in volume and price (just like the stock markets and the unreal estate market in India) the Al-Zaidi shoes and gold are the only assets that seem to have any demand these days.

A Saudi gentleman reportedly was willing to buy the shoes for US$ 10 million. And, there have been offers for marriage made by shoe-struck fathers looking for a suitable match for their daughters.

While the Americans may not be as blunt as Al-Zaidi - they seem to have the same feelings about President-in-fade Bush. Seventy-five percent of those questioned in a CNN/Opinion Research Corp survey released on December 26th (the same day the Iran Revolutionary Guards sponsored the Bush shoe-throw) said they're glad Bush is going; 23 percent indicated they'll miss him. "Earlier this year, Bush scored some of the lowest presidential approval ratings we've seen in half a century, so it's understandable that the public is eager for a new president to step in," said Keating Holland, CNN polling director. CNN senior political analyst Bill Schneider added, "As President Bush prepares to leave office, the American public has a parting thought: Good riddance. At least that's the way the 75% feel."

The other 25% are probably working in the Wal-mart stores that will sell "Sho-ush" so they need Bush to be around - he is crucial to their jobs!

A rainfall of chappals
Closer to home, the management of Satyam may be feeling a bit Bush-ed out now. After trying to use Rs 5,000 crore of other people’s money for rescuing the shareholders (which happened to be their own family) of Maytas Infra and Maytas Properties they have nothing but chappals being thrown at them. Unfortunately, because there are so many chappals coming in from so many directions - the Department of Company Affairs, the fund managers, the press, the analysts - the value of each chappal being thrown at them is zero. Equivalent to the value of shares of Maytas Infra or Maytas Properties before the proposed Satyam bail out: zero.

So, collecting all the chappals and selling them to the Saudi businessmen as a tag-along of his desire to buy the Al-Zaidi shoes will not really raise much money for the Maytas companies. They are doomed to find another source of free money.

And the independent Directors though not yet fully in the firing line, are pretty much in range. NDTV reported that "Left party MP Abani Roy has written to Prime Minister Manmohan Singh, seeking the removal of Satyam's independent director Rammohan Rao from government positions." Rao is currently the Dean of the prestigious Indian School of Business and has shown an "irresponsible role of conduct" in his capacity as an independent director on Satyam's board in the company's aborted attempt to acquire two Maytas firms. NDTV goes on to say that it "accessed the details of the unlisted Maytas Properties and found that it had huge debt of its books and its net worth was only Rs 21 crore."

A case for many brooms
While the press and fund managers are all gung-ho that we are finally getting our act together on "corporate governance" a humble suggestion: let’s start to cleanse the system once and for all.

While throwing shoes and chappals is a sure sign of courage, let’s get the broom out and start mopping up big time.

  1. the oil companies - like ONGC, IOC, BPCL, HPCL are all listed - and we have invested in some of these on behalf of our clients - so can we get the broom out and ask under which authority are these companies being forced not to charge the market prices for their products? Was this stated in the prospectus when these companies filed their IPO’s? Was there some government plan to allow free market pricing of petroleum products? Was this a fake carrot to make sure their IPO was sold? Has there been any discussion at the board level of these companies as to whether these companies should give products away for free and why? What were the views of the independent board members? It is heartening that the Department of Company Affairs wishes to go into detail on what transpired at the board meetings of Satyam. Just like Satyam, the largest shareholder in these oil companies does not have a right to control the funds that belong to all shareholders. Please could the Department also take a look at the oil companies - and the political parties that are keen to see them die?

  2. the PSU banks - like State Bank of India and PNB are also listed - and we have invested in some of these on behalf of our clients - so can we get the broom out and ask how decisions are made on who to lend to, how much to lend, and at what price? This, by the way, is the essence of banking and it would be interesting to see how much freedom the PSU Banks have in this regard? And what is the correlation between the statements made by Finance Ministers on where they would like to see interest rates and ease of lending by banks - and the actual decisions made by the banks? Do any of the board members enter into any debates on this based on "what is good for the bank" or are they all nodding their head in unison each time the largest shareholder voices an opinion? One more case for the Department of Company Affairs.

  3. Directing steel and cement prices: in the past, the government has directed companies to reduce or maintain cement and steel prices. If the government has any proof of price-fixing, why can’t they use that to shut down or fine these businesses? Why threaten them and coerce them? We have some exposure to some steel companies for our clients.

  4. Real estate: why is the government trying to save these real estate developers? Every act of the government on real estate is focused on: allowing banks to lend more for buying real estate and reducing the interest rate on real estate loans. All good things, indeed. But how about getting back to the real estate companies and saying "cut your selling price by 40%"? The government forces the banks, the oil companies, and the cement and steel companies to cut their selling prices. I guess forcing the real estate companies to cut their prices may be inconvenient. Because it could mean that those real estate companies would no longer make the promised returns - which is not good if it is those profits from real estate projects are needed to pay for the next election campaign! All conjecture mind you, but we need the broom to sweep the truth in.

Satyam was in many ways doing what governments in India have been doing for years - routinely acting as the lord and master of the universe and using other people’s money to further their own selfish goals. The problem with Satyam was that they got caught with their hand in the till. And I am sure they will be dealt with.

So now that we have had the courage to throw chappals at Satyam, which of us has the courage to bring out the broom?


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