Tycoon’s $7 Billion Wipeout [Failed Business]

It was supposed to be the crowning achievement of Malaysian tycoon T. Ananda Krishnan’s five-decade career.

But his $7 billion bet on mobile carrier Aircel Ltd. may instead go down as one of the biggest-ever flops by a foreign investor in India, a stark reminder that doing business in the world’s fastest-growing major economy is often a lot tougher than it looks.

T. Ananda Krishnan

Photographer: David Paul Morris/Bloomberg

Krishnan’s holding company stands to lose all the money it poured into Aircel over the past 12 years, people with knowledge of the matter said, after the carrier filed to start bankruptcy proceedings this week. Buffeted by intense competition and regulatory uncertainty, Aircel is the latest in a long list of casualties in an Indian telecom market that only a few years ago was luring foreign entrants in droves.

While international companies have fared much better in India’s buoyant consumer products and financial services industries, the turmoil in telecom is unlikely to help Prime Minister Narendra Modi’s campaign to lure more foreign capital. In January, his government eased restrictions on foreign direct investment in several sectors, including single brand retail, real estate brokerages and power exchanges.

“India has always been a difficult market, even as it offers the prospects of great demographics and a billion-plus population,” Sampath Reddy, chief investment officer at Pune-based Bajaj Allianz Life Insurance Co., said by phone. “The Aircel episode definitely has lessons in the offing for anyone who starts a business in the country.”

Krishnan, 79, spent about $800 million to purchase Aircel in 2006, when less than 10 percent of India’s 1.1 billion people owned a mobile phone and the scope for growth looked nearly limitless.

By that time, the Harvard Business School graduate had already established himself as one of Malaysia’s most powerful billionaires, with controlling stakes in the country’s biggest mobile-phone and pay-television operators and close ties to former Prime Minister Mahathir Mohamad.

India Allure

Faced with lackluster growth at home, Krishnan saw India’s booming market as key to his empire’s future. And he was willing to invest big to make Aircel a success.

— Read Full Story from Bloomberg



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