Future looks bleak for Rana Kapoor-funded firms

The collection of mostly small and medium sized businesses is a hotchpotch of ventures and include design schools, schools, villas for hire in Goa and a country club in Gurgaon.

Even as jailed YES Bank founder Rana Kapoor, his wife Bindu and their three daughters Radha (left), Roshni (right) and Raakhee are under scanner for kickbacks, insider trading and breach of Reserve Bank of India (RBI) regulations, questions persist on the future viability of going concerns that their trusts and related companies had funded.

They include at least a dozen ventures that employ as many as 2,000 people.

The collection of mostly small and medium sized businesses is a hotchpotch of ventures and include design schools, schools, villas for hire in Goa and a country club in Gurgaon.

They also have a business club for young executives in Mumbai, a sporting franchise, a French luxury accessories brand, a chain of dry cleaning stores, co-working office space and even Businessworld, the staid fortnightly business magazine.

Beyond the pressure that all concerns are facing as a result of the epidemic, lockdown and a shrinking economic footprint, what is the future of these businesses?

A spokesperson for the three sisters said, in a mailed response, that “the ventures incubated by The Three Sisters Institutional Office are managed by highly-qualified professional entrepreneurs and that some companies had also raised third-party institutional capital from marquee PE/VC funds.”

The spokesperson went on to say that “under the current circumstances due to the ongoing COVID-19 pandemic, all businesses were following the norms and mandates laid down by the authorities that are applicable to their respective industries.”

Given that Kapoor is in jail, will these businesses get impacted?

The legal answer, explains counsel Percival Bilimoria, who has worked on white-collar crime cases, is that if other companies were funded by “siphoning off funds, then the capital lent out should be returned to the investor company, and may result in other companies shutting down their businesses to be able to do so.”

The two qualifications to that are it should be an “illegal diversion” in excess of  rules for inter-corporate lending and perhaps even without requisite approvals of the directors/shareholders of the lender company.

“Two, it must be established that this is the case and then the consequences under the Companies Act, and the Penal Code would follow,” Bilimoria said.

Beyond the scope of law, related companies to a patriarch that are under investigation do face challenges.

Harkamal Ghuman, managing director at Alvarez & Marshall, says anytime a company is firefighting at the top because of a promoter’s actions, stress and scrutiny starts to percolate to all related companies.

Clearing reputation and going through the necessary steps with the judiciary can impact current business plans for sales, raising funds and other capital allocation.

Certain ventures such as Awfis Space, the A Club, the Palms Town and Country Club as well as educational centres with class facilities are likely to see increasing pressure.

This is because of social distancing norms, and pullbacks in leisure spending that have hit the entire industry.

One former employee at YES Bank indicated that the promoters would typically buy or invest in the businesses through several companies in which Rana Kapoor’s daughters were the promoters.

All or most of the investments were funded by the Kapoor family office.

Presstos’ a dry-cleaning chain set up across Mumbai, New Delhi and Bengaluru, started in 2008 and now has around 45 locations and was led by Radha Kapoor.

While most business ventures under the three sisters are shut on account of the virus, the executives in charge of some have started leaving.

Romil Ratra, a long-time hotelier, and chief executive officer (CEO) of the A Club left his full-time position in February and declined to comment when contacted.

The A Club has around 400 members along with another 200 occupants who were using its facilities for offices.

Businessworld was sold by the ABP Group to advertising professional Anurag Batra, who consequently brought in Kapoor, and over a period of time, offloaded a majority stake to the banker who put Radha on the board as director.

Batra said, “I had appointed an investment banker as early as December to find an investor and allow Rana Kapoor to have an exit,” he said.

“Given the situation, I will be looking for investors to raise capital and help Businessworld,” he added.

While the Indian companies are one set of businesses that will be impacted by the investigation, Kapoor’s assets are also located in the US, UK and France. It is yet to be determined if companies were also set up in those countries.

Ghuman added, “Even if a business is organised, run by professionals, and sound, the time to clear the ground with not one but multiple agencies and authorities can be the biggest hit to the business.”

Photograph: Amit Dave/Reuters