Afghanistan | Learning by Proxy

A military pull-out and suddenly every leader in Asia is worried about the country that none of them cared about.

Jul 30, 2021

When the Romans used to build their arches, they would start the foundation from both sides and finish up at the top. The final stone to be placed would provide compression to both sides and hence hold the arch in position. It was a wedge-shaped piece called the Keystone. If the keystone was to be removed, the entire arch would fall.

Source: Pixabay

Afghanistan has turned into a keystone for Eurasian peace!

Afghanistan

For a long time now, across the world, the rich have been getting richer and the poor poorer. This has become unavoidably obvious in the post-pandemic world which has minted out hundreds of new billionaires while also delivering 100s of Millions BACK into the laps of poverty.

In January 2021, Biden moved into the White House. His agenda was clear. He wanted to reduce the expenditures on frivolous things and focus more on the poor in America. They can benefit a great deal from the investment that the government can make in raising their standards. The one thing Billionaires hate doing is pay taxes in order to improve the lives of others. They would much rather pretend to be improving the lives of others through their foundations. Read my post on Philanthropy.

Biden needed to redirect government spending and the easiest thing to go after was the defence spending in Afghanistan. George Bush started the war in 2001 ostensibly to find Osama Bin Laden, who was comfortably lodged in Pakistan. In the intervening 20 years, over $2.4 Trillion have been poured into maintaining a troop presence in Afghanistan. Over 2,300 soldiers dead.

It helped the companies that George Bush held shares in (Haliburton) get very very rich. Selling the idea of an Afghan withdrawal where several American soldiers have died and continue to die unnecessarily, was not hard.

Biden decided to end the occupation in Afghanistan and bring the troops home by September 11, 2021.

In the intervening 20 years,

In 2001, China was just a manufacturer known for the poor quality but low priced products. They make most of the things we consume today. Further, a lot of that growth has also been driven by the detention camps that China runs in the Xinjiang region which is populated by Uighur Muslims. Muslims whom the CCP hates.
Pakistan has gone through a lot of tumults. It is extremely dependent on China for its continued existence. It is also a part of the Belt Road Initiative under which China has made a lot of investment into the country.
India has made a lot of investment in Afghanistan in the interim to secure its interest to counter-balance Pakistan; much like China uses Pakistan as a counter-balance in the case of India. The Indian government has left no stone unturned so far as drawing the ire of the people of J&K is concerned.
Russia had its teeth broken in Afghanistan due to US intervention in the 80s. They don't want to revisit the place. But Russia also has a whole host of Muslim nations on its southern border; all of the ‘-stans’. Tajikistan, Turkmenistan, Uzbekistan, Kazakhstan, and Kyrgyzstan. The last thing they need, given their history, is for factions from Afghanistan to foment any trouble in any of these regions.

As soon as the US Army started its withdrawal, city after city, started falling into the hands of the Taliban. The Afghan army straight out surrendered and handed over their weapons.

India unilaterally changed article 370. Imprisoned all the politicians in J&K and cut the internet across the valley for almost a year. Little wonder, that under pressure from the US, all those same politicians were invited to New Delhi for "talks".

The people from Xinjiang can find support from the Taliban. The people of J&K can find support from the Taliban. The people of Balochistan can find support from the Taliban. Most importantly Afghanistan can become a safe haven to sit and plan terrorist activities.

As the Taliban push ahead with military offensives across Afghanistan, preparing to take over after the exit of US and NATO forces, India faces a situation in which it may have no role to play in that country, and in the worst case scenario, not even a diplomatic presence.
[...]
Speaking at the Afghanistan Conference in Geneva in November 2020, External Affairs Minister S Jaishankar said “no part of Afghanistan today is untouched by the 400-plus projects that India has undertaken in all 34 of Afghanistan’s provinces”. The fate of these projects is now up in the air.
Source: Indian Express

Across these projects, India has invested over $3 Billion. So not only the possibility of adverse support to J&K separatists, India is looking at potentially writing off a lot of money invested in the country.

For President Xi Jinping and the Chinese Communist Party, Afghanistan is of geopolitical importance. It offers a portal through which the Chinese military might access the Arabian Sea, via Iran or Pakistan. The war-torn country could also provide access to Iran and the Middle East, and a route to the Indian Ocean and on to Africa, reported Fox News.
"Because the Chinese are more vicious, yes, I think they'll have a better chance of achieving their goals in Afghanistan than us," author and CCP expert Gordon Chang said in an interview with Fox News. "But having a better chance doesn't mean they'll succeed. I think they will just take longer to fail."
[...]
Beijing will expect the Taliban to ignore the "genocidal" oppression of their fellow Muslims, the 12 million Uyghurs in China's Xinjiang province, which sits close to the Afghan and Pakistani borders.
Source: Mint

Russia has announced it will hold joint air drills with Uzbekistan along the Central Asian nation's border with Afghanistan but has dismissed the notion that real airstrikes were being planned.
The Russian Defense Ministry stated Thursday that Su-25SM attack aircraft of the Central Military District's aviation fleet based in allied Kyrgyzstan were set to take part in joint Russian-Uzbek aerial exercises from July 30 to August 20. The ministry said that the "practical part of the training event will take place at the Termez training ground in the area bordering Afghanistan."
Source: Newsweek

Everyone is sweating it. The fate of Afghanistan is unknown at the moment. The only thing that is certain is that the sitting government is sure to fall and with that, the Taliban is most likely to move into power. Are they going to seek nation-building, in whatever capacity, or move back to their old ways is not known.

If they do go back to their old ways, all of the bordering nations will have something to lose.

IPO

The past 12 months have provided us with a flurry of IPOs. There is so much capital floating around that everyone seems to be getting listed. Last week Zomato, one of the early breed of startups that got the ball rolling in India, got listed.

Zomato was a company that raised $319.5 Million at a valuation of $3.4 Billion (Rs. 24,000 Crores) across 2020.

Zomato witnessed a stellar listing on Friday as the stock jumped over 53% over its IPO price of Rs 76 on debut to quote at Rs 115. After hitting an intra-day high of Rs 138 on the BSE, the stock finally closed at Rs 126, giving the company a market valuation of Rs 98,732 crore, ahead of traditional giants like Tata Motors, M&M and Coal India.
Zomato’s strong debut also proved a lot of Dalal Street pundits and doubters wrong who had questioned the new-age company’s pre-IPO valuation of Rs 60,000 crore. Even those who believed in the loss-making company’s valuation then, were expecting its listing gain to be limited at 25%-30%. On July 16, the company had closed its IPO bidding process with an over 38 times oversubscription and advanced its listing date by at least four days to Friday.
Source: Times of India

After being listed at a valuation of over $8 Billion the company closed its first day at a valuation of $13.3 Billion. This, for a company that eked out revenues of $394 Million in 2020 and has never been profitable.

For stable businesses, the market usually values companies at 10x to 30x profits but since there are no profits to talk of here let us look at revenues. 3x to 5x revenue multiple is given to businesses that are stable and have a steady growth. The current valuation seems to show that investors expect Zomato to continue to at least double its revenue every year for the coming 3 - 5 years.

There is the only way that any market learns, by making mistakes.

The press has been quick to declare the Zomato founder, a Billionaire. The truth for a CEO of a billion dollar company that has just been listed is that those shares are a crown of thorns. He cannot be seen selling them, the price of those shares will crash immediately. So while he might be able to liquidate a small amount of shareholding to make himself more than comfortable, all that value is really not accessible to him.

Further, this IPO will spur a series of tech IPOs in India. The market seems primed to take the risk and companies such as Paytm, Policybazaar, Nykaa and maybe even Flipkart might see what may be possible if they were to go to market. Paytm has already filed their Draft Red Herring Prospectus with SEBI to issue an IPO and they are seeking an even more ambitious valuation of $30 Billion.

The interesting thing would be to see how these businesses fare over the long arc of time.

Having said that the US is also seeing a raft of IPOs. In their case especially Tech IPOs have been many. Not just US companies but Chinese and others as well.

Reminds me of a line I read in a book recently -

"In other words, there seems to have been a profound contradiction between the political imperative of establishing capitalism as the only possible way to manage anything, and capitalism's own unacknowledged need to limit its future horizons lest speculation, predictably, go haywire. Once it did, and the whole machine imploded, we were left in the strange situation of not being able to even imagine any other way that things might be arranged. About the only thing we can imagine is catastrophe."
~ Debt - The First 5000 years by David Graeber

Capitalism is only stable when people feel things can implode at any moment. The second they feel too secure about its long term future, speculation runs amok and the system does implode.

In 1998, one of the first Social media companies called theGlobe.com listed on the NYSE at $9 per share. Within a matter of days, it was being traded at $97 per share. In 2001, the shares of the company were trading at 10 cents to a share.

Tale of Two Airlines

In April 2019, I was stranded in the Bangalore airport. The flight I was to take to Pune was cancelled.

A Jet Airways flight.

I had somehow managed to pick exactly the day on which the airliner imploded. For the next 24 hours, I had to work out several flight changes to be able to complete my trip.

Jet Airways had been running up losses since the rise of Indigo and its failed sale to Etihad did it in.

Lenders had dragged the company to the insolvency court over unpaid dues to the tune of ₹8,500 crore
The Mumbai bench of NCLT has concluded Jet Airways’ hearings for the approval of the resolution plan submitted by a consortium of Kalrock Capital and Murari Lal Jalan. The Bench has reserved the order.
During the hearing held on Monday, the two-judge Bench heard the clarifications on the resolution plan from the lawyers on behalf of the resolution applicant, Jalan and Kalrock.
Source: Hindu Business Line

There was a resolution that was worked out which involved creditors taking more than a 90% cut on their outstanding amount. Yes. More than 90%.

While Jet has admitted claims of over Rs 15,000 crore, the consortium proposed to pay nearly Rs 1,200 crore to creditors over the next five years and re-establish Jet Airways as a full service airline with 25 aircraft fleet. According to the resolution plan, banks will get a 9.5 per cent stake in the airline while public shareholding will reduce to 0.21 per cent. The consortium would hold 89.79 per cent in the airline. Employees will also get 0.5 per cent stake in the airline.
Source: Business Standard

The shares of Jet Airways are still traded on the stock exchange and jumped to a 52 week high on news of the restructuring. But actually...

The resolution professional had received claims of over Rs 44,000 crore from financial creditors and employees of which claims to the tune of Rs 15,400 crore were admitted. Financial creditors such as State Bank of India, Yes Bank and others claimed Rs 11,344 crore but only Rs 7,453 crore worth of claims were admitted.
Source: Business Standard

That is Rs. 44,000 Crores! And I did not get a refund for my Pune ticket.

Naresh Goyal, the former promoter of the now-defunct Jet Airways, might be facing investigations from several central and state agencies, but the high-flying businessman remains scot-free for now.
Weighed down by a debt burden of around Rs 8,400 crore, the carrier had to suspend operations in mid-April 2019 after it ran out of funds to remain afloat.
The cash-strapped Jet Airways grappled with fund misappropriation and legal problems before it went defunct. In August 2018, the western regional director of the Ministry of Corporate Affairs had initiated a preliminary enquiry against the airline and its promoters over suspicions that the promoters siphoned off funds. On the basis of this probe report, the ministry on July 4, 2019, asked Serious Fraud Investigation Office (SFIO) to initiate a detailed enquiry.
Source: Moneycontrol

I went down this rabbit hole because I saw this...

A British court on Monday granted a bankruptcy order against Vijay Mallya, paving the way for a consortium of Indian banks led by the State Bank of India (SBI) to pursue a worldwide freezing order to seek repayment of debt owed by the now-defunct Kingfisher Airlines.
“As at 15.42 [UK time], I adjudicate Dr. Mallya bankrupt,” Chief Insolvencies and Companies Court (ICC) Judge Michael Briggs said in his ruling during a virtual hearing of the Chancery Division of the High Court here.
Source: The Wire

Back in the day...

Flamboyant business tycoon Vijay Mallya-promoted, Kingfisher Airlines, whose properties in Mumbai, Panaji and Bengaluru were raided by the Central Bureau of Investigation (CBI) on Saturday, had borrowed around Rs.7,000 crore from 17 financial lenders.
A consortium of 17-state-owned financial lenders led by India's largest lender State Bank of India was formed to recover the money from the airline company.
Source: Business Standard

Similar debt burden; such different outcomes. Vijay Mallya fell on an axe of his own making. Having said that, quite clearly the problem is definitely not the money that he owes. Obviously, it seems to be quite easy to make that go away. The exact same banks that went after Jet, went after Kingfisher Airlines. They took a 90% haircut with Jet, with Kingfisher, they just keep revising the figures with Compound Interest.

Why such different standards? I think the question we should be asking is...

Who did Vijay Mallya rub the wrong way?

Also

A Microsoft engineer was driving through the Sonoma Valley and he just stopped and took a picture in 1996. It went on to become the most famous picture on earth. Look what we have done.