Prof. Jayanth R. Varma - Cases and Teaching Material

Chara Technologies Pvt Ltd: Seed Funding Challenges Before the Investment Committee

Case written in 2024 Geography: India Event Date: 2020
In October 2020, Chara Technologies Pvt Ltd approached IIMA Ventures, a leading start-up incubator in India, for seed funding of INR 50–60 million. Bhaktha Keshavachar and Ravi Prasad had founded Chara Technologies with the aimof producing a new electric motor that would be free of permanent magnets and would be built on the principles of switched reluctance motors. In their pitch to the Investment Committee (IC), the founders emphasised three aspects of their technology venture. First, as the design did not require the use of permanent magnets, it would be significantly cheaper than alternative designs. Second, the rare-earth-free design due to the elimination of magnets made it a valuable green initiative. Finally, the local design and manufacturing of electric motors for the electric vehicle segment in India aligned well with the government's initiative to increase India’s self-reliance and decrease the country’s dependence on Chinese products. Although the technology venture was at the confluence of multiple investment themes, the IC sensed that Chara’s business model would encounter several serious challenges. The IC had to make a decision—should it invest in the start-up, or not?

WeWork: Public versus Private Markets

Case written in 2023 Geography: United States Event Date: 2021
In January 2021, Sandeep Mathrani, Chief Executive Officer of the troubled real-estate firm WeWork, was evaluating a merger offer from the BowX Acquisition Corporation, a Special Purpose Acquisition Company (SPAC) founded by Vivek Ranadivé of TIBCO Software. WeWork’s financial position remained precarious after a failed initial public offering in September 2019. The BowX transaction offered a different route for WeWork to become a publicly listed company and could potentially ameliorate its financing problems. However, the SPAC transaction posed risks and challenges. Should WeWork accept the offer from BowX? If yes, what safeguards should it negotiate to mitigate the risks?

Nayan Parikh & Consultants: Loan against Shares

Case written in 2021 Geography: India Event Date: 2021
In March 2021, Nayan Parikh & Consultants (NPC) has to decide how to recover the loan that it had extended to Shrenikbhai Vimawala, Chairman and Managing Director, Shrenik Limited against a pledge of Shrenik shares. When NPC granted the loan to Vimawala a year earlier, it was to be paid back within 3 months. But, immediately after disbursing the loan, the Covid-19 pandemic caused a severe disruption of economic activities in India and Shrenik also faced financial difficulties. In view of this, NPC provided multiple extensions of time to Vimawala. But in March 2021, the pandemic had abated in India, the economy was on the recovery path, and NPC was concerned about recovering its dues. Shrenik's stock price had fallen sharply and its financial situation had deteriorated considerably.

Governance at ICICI Bank: Chairman's Dilemma

Case written in 2021 Geography: India Event Date: 2019
The non-executive Chairman, Chaturvedi, has to provide leadership to the Board of Directors of ICICI Bank as it deals with the adverse findings by a former Supreme Court judge against Ms. Chanda Kochhar, the former Chief Executive of the Bank. She had not disclosed a conflict of interest regarding a loan to a corporate group that had dealings with her husband. Months earlier the Board had exonerated her and also allowed her to retire from the Bank. Could and should the Board now reclassify Kochhar’s retirement as ‘Termination for Cause’ and claw back her past bonuses?

Startup Financing Issues

Case written in 2021 Geography: India Event Date: 2020
The case introduces three different startup contexts where the financing proposals involve instruments with certain unique features. The caselets narrate the difficulties that arise in the early-stage financing of firms and offer an opportunity to discuss how appropriate financing structures act as mitigants. The financing structures cover, staged VC financing, participating preference shares, financing with anti-dilution clauses, and convertible notes.

Northern Textiles Limited (A)

Case written in 2021 Geography: India Event Date: 2008
Northern Textiles (NTL) used highly complex derivatives to hedge its currency risk, and these structured products have been profitable in the past. But in 2008, unanticipated movements in exchange rates have led to serious losses. Seth, the Chairman of NTL, has come to know about the losses on a specific deal, but the Treasurer has ensured that he is the only person who understands the derivative book in its entirety. Though Seth is not aware of how grave the problem is, he realizes that he must review NTL's risk management policies and perhaps even replace the CFO.

Northern Textiles Limited (B)

Case written in 2021 Geography: India Event Date: 2008
NTL suffered huge losses in its foreign exchange hedging activities as its highly complex leveraged structured products backfired badly in the wake of the Global Financial Crisis of 2007 and 2008. The CFO and the Treasury head have both been sacked, and Joshi, the new CFO, has embraced aggressive litigation as NTL’s survival strategy to cope with the losses that threaten its solvency. In the meantime, NTL also faces tax investigations and whistleblower allegations of fraud, and it finds that the record-keeping of its derivative transactions was hopelessly incomplete and patchy. A complete reconstruction of the entire derivative transaction history is the only way to rebuild trust, and that task falls on Reddy, a seasoned derivatives expert brought in by the Board specifically for this purpose. In this dire situation, Seth, the founder Chairman of NTL decides that NTL needs to put all this behind it and focus on rebuilding the business. The challenge for Seth, Joshi and Reddy is to go about doing this in an environment that offers very few rays of hope.

Reliance Communications: On the Brink of Bankruptcy

Case written in 2021 Geography: India Event Date: 2017
The case describes the change in fortune of Reliance Communications (RCom) from being a pioneer in offering low-cost mobile telephony to the brink of bankruptcy. After giving a brief background on the family history of Reliance Industries, its break-up and the launch of RCom, it describes the changing dynamics of the Indian telecommunications industry after the launch of Reliance Jio and the difficulties faced by RCom. As RCom's debt troubles increased, while its stock price and its credit rating plunged, yields on its Indian Rupee bonds barely moved. The case allows for discussing ways of implementing capital structure arbitrage in such situations and analyze issues that arise in doing so. The case provides data on yields on RCom's Indian Rupee and US dollar bonds over time and provides additional relevant financial information about RCom, including its market share, stock price, credit rating and balance sheet variables. The case would be appropriate for use in an advanced corporate finance or a strategic risk management or a trading strategies course.

Prime Broking Default at the National Stock Exchange (with Sobhesh Agarwalla)

Case written in 2020 Geography: India Event Date: 2013
When Prime Broking defaulted on its equity derivative positions at the National Stock Exchange, the central counterparty (CCP) suffered substantial losses, although there was no significant movement in the relevant market prices. This revealed hidden risks arising from collateral, liquidity and concentration, wrong-way risks and operational risks in the default management process, even when the market risk environment is benign. The CCP ends up with risks it is not designed to handle and similar to those faced by a bank. The CCP suffered massive losses, even though its market risk models functioned flawlessly.

Tezos: Governance in the Cryptocurrency World (with Samir Barua)

Case written in 2020 Geography: United States and France Event Date: 2017
In November 2017, Arthur and Kathleen Breitman, the founders of Tezos, confronted a governance crisis that threatened to destroy their project and expose them to serious legal risks. All developmental activities in Tezos were stalled after Breitmans lost access to the funds raised through an initial coin offering (ICO) four months earlier. Moreover, a series of class-action lawsuits in the United States alleged that the USD 230 million ICO of July was an illegal security offering. The case provides a fascinating situation for discussions on the principles and the frameworks for governance.

Swap Curve Steepener (with Vineet Virmani)

Case written in 2017 Geography: United States Event Date: 2007
The case is about a decision problem facing James on whether or not to invest in a structured product called the "CMS Steepener" issued by a large US investment bank. The payoff from the product is linked to two constant maturity swap (CMS) rates, and the investor profits if the difference between the two CMS rates increases, or alternatively if the CMS curve steepens. The case describes the risks that investing in such a product poses, and presents relevant data on the CMS rates, term structure and recent financial history of the issuer to help resolve James’s decision problem.

Hundred Million Dollar Beta (with Vineet Virmani)

Case written in 2016 Geography: United States Event Date: 2014
This case is about the practical and conceptual issues involved in estimating the beta of a company for the purpose of computing the cost of capital using the CAPM (Capital Asset Pricing Model). In many applications of the CAPM in the classroom, the beta is assumed to be known or is exogenously specified. This case is an opportunity to confront the fact that, in the real world, the beta has to be estimated and there is often a wide range of uncertainty (confidence interval) around any point estimate of the beta. The issue that Delaware Chancery Court Vice Chancellor Judge Travis Laster needed to resolve in October 2014 was that the beta estimated by the plaintiff and the defendant varied so substantially that they implied a difference of over $100 million in the valuation of Rural-Metro. The case provides a live context to discuss conceptual and statistical issues that are often glossed over as minor details of the estimation process. In the real world, these apparently minor details make a big difference to the results and can no longer be ignored. In an advanced course, the case also provides an opportunity to expose the participants to the large academic literature on beta estimation.

Swiss Roll - A (with Vineet Virmani)

Case written in 2016 Geography: Switzerland Event Date: 2015
In September, 2011, to prevent its currency from appreciating after the Global Financial Crisis, the Swiss National Bank (SNB) decided to peg its currency to EUR and announced that it would not let CHF go beyond 1/1.20 EUR. Maintaining the peg required the SNB to purchase foreign currency assets virtually endlessly in response to the worsening Eurozone crisis. By end of 2014, its foreign currency exchange reserves amounted to alomst 80% of its GDP. In an attempt to deter capital flows and reduce its balance sheet size, in December, 2014, the SNB first brought the interest rate on commerical bank deposits to negative levels and then, facing impending quantitative easing by the European Central Bank, announced the removal of the peg on January 15, 2015. The case describes the backdrop and the circumstances leading up to removal of the peg.

Swiss Roll - B (with Vineet Virmani)

Case written in 2016 Geography: Switzerland and US Event Date: 2015
In the aftermath of global financial crisis of 2008 and the ensuing capital flows into Switzerland, the Swiss National Bank (SNB) decided to peg Swiss Franc (CHF) to the Euro (EUR), and announced that it would not let CHF go beyond 1.20 starting 6 September, 2011. With ever-increasing capital flows, maintaining the peg required the SNB to purchase foreign currency assets almost endlessly, and by the end of 2014 its foreign exchange reserves stood at almost 80% of its Gross Domestic Product. With the European Central Bank announcing its “quantitative easing” program from 2015, and faced with the prospect of a massive balance sheet, SNB finally decided to discontinue the peg starting January 15, 2015. Immediately after the peg was removed, the CHF surged by almost 30% to EUR and this left many market participants stranded with losses worth hundreds of millions of dollars. This case describes the market turmoil and the main casualties after the peg was discontinued, with a focus on one particular retail foreign exchange (FX) brokerage firm, FXCM Inc., which was left with a negative equity of almost $300 million after removal of the peg.

Angels and Crowds (with Joshy Jacob)

Case written in 2015 Geography: India and US Event Date: 2014
The case focuses on the key choices and decision issues that entrepreneurs face in the fast evolving mode of startup funding, known as crowdfunding. It is centred around three products which vary significantly on many dimensions such as the level of innovativeness, risk, social good generated by the product, and the target group. The products presented facilitate rich discussion on the key crowdfunding decisions such as relative merits of angel funding and crowdfunding, choice of the crowdfunding platform, nature of campaign, target amount and reward structure. The case highlights financing issues of startups and compare the two products in their attractiveness for reward crowdfunding.

The Mispriced ADRs of Allied Irish Banks (with Joshy Jacob)

Case written in 2014 Geography: US and Ireland Event Date: 2014
After the global financial crisis of 2008, Allied Irish Banks (AIB) was rescued by the Irish government. During 2013 and 2014, the tiny fraction of shares remaining with the public appeared to be vastly overvalued in the Irish stock market. The American Depository Receipts (ADRs) of AIB appeared to be overvalued even relative to the inflated Irish price. The case illustrates the possibility of pervasive mispricing in an illiquid market and the difficulty of valuing companies with large embedded option values.

Great Northern Iron Ore Properties (with Joshy Jacob)

Case written in 2014 Geography: US Event Date: 2013
The case presents a context of irrational pricing in a stock and demonstrates the possible role of investor heuristics operating in the financial markets. The case is ideal for use in a course on behavioural finance to teach topics like the limits to arbitrage or the influence of various heuristics in financial markets.

MotherRock LP: Natural Gas Calendar Spread

Case written in 2013 Geography: US Event Date: 2006
The case deals with risk management issues related to a large calendar spread position in a highly seasonal and volatile commodity (natural gas). Apart from fundamental factors affecting the supply and demand for natural gas, the spread is also exposed to transient price movements in the futures market itself.

Hedging Cross Border Commodity Price Risk

Case written in 2013 Geography: India Event Date: 2012
The case is about an Indian company hedging soya oil price risk in the US futures market instead of in the Indian market to take advantage of better liquidity and wider choice of hedging instruments there. A stable long run relationship (cointegration) between the two markets appeared to make the cross border hedge viable, but hedge accounting considerations appeared to stand in the way.

Pitfalls in Single Stock Futures

Case written in 2013 Geography: India Event Date: 2011-2012
The case describes two episodes where the basic valuation model (cost of carry model) for single stock futures appears to break down. The first involves market manipulation and the second involves an unexpected change in the record date for an already announced dividend. This breakdown leads to large losses for the participant in these futures markets.

Hedging using Target Redemption Forward

Case written in 2013 Geography: India Event Date: 2007
The Chief Financial Officer needs to hedge the company's euro denominated exposures and is evaluating a sophisticated derivative instrument that hedges the exposure into dollars (instead of rupees) and involves complex knock-in and knock-out features.

JPMorgan Chase and the London Whale

Case written in 2013 Geography: US and UK Event Date: 2012
In April 2012, JPMorgan Chase & Company was struggling with large losses that had the potential to damage the reputation of the company, of its Chairman, Jamie Dimon, and of its Chief Investment Officer, Ina Drew. The losses arose from large credit derivative trades in the London office that Dimon described as “bad strategy ... badly executed ... poorly monitored”.

General Electric and GE Capital (with Joshy Jacob)

Case written in 2011 Geography: US Event Date: 2008
The case discusses various options available to GE Capital to manage its liquidity and solvency crises which were aggravated during the height of the financial crisis of 2008. GE capital needs to decide how to restructure its liabilities to meet its urgent liquidity needs while maintaining its long-term growth and competitive advantage. The case brings forth the interrelated and complex issues surrounding the choice of long-term and short-term funding of a very large financial services and industrials business combine. The case offers itself as a valuable context to examine the capital raising choices during stressful market and firm conditions.

Cases in Market Manipulation and Regulatory Violations

Case written in 2011 Geography: US, Japan, India Event Date: 2004
This case brings together four incidents of market manipulation and regulatory violations in different organizations in India and the UK. It highlights the importance of regulatory compliance and ethics in financial organizations. Principles-based regulation is more flexible but can be ambiguous and uncertain. Rules-based regulation has the advantage of clarity and certainty but encourages regulatees to find loopholes in the law. The case illustrates the differences between rules-based and principles-based regulation and the role of the appellate process. It also points to the risks involved in pursuing strategies that are not explicitly prohibited by law but would be perceived as unfair or inappropriate.

ICICI Equity Issue 2007 (with Sobhesh K. Agrawalla and Joshy Jacob)

Case written in 2010 Geography: India, US Event Date: 2007
The case discusses the choices relating to seasoned equity issuance for ICICI Bank, one of India’s largest banking and financial services conglomerates, in mid 2007 shortly before the global financial crisis begins to unfold. In this context, the case raises issues about the size and timing of equity issuance. It also highlights reliance on external finance for large rapidly growing companies in emerging markets. ?The bank which operates in 17 countries and is listed in India and the United States also needs to decide whether part of the new equity should be raised in foreign equity markets.

Mizuho Securities and other trading errors

Case written in 2010 Geography: Japan, US, India Event Date: 2005
Electronic trading systems allow trades to be executed rapidly and efficiently, but also make it easy for traders to make errors by punching in the wrong numbers particularly while trading in a hurry. This case describes a large trading error at Mizuho Securities that cost the firm $335 million as well as two other similar incidents in India and in the United States. The case describes the deficiencies at the trading firm and at the exchange that lead to such mishaps and also discusses how traders and exchanges could respond to these errors.

Vedanta Resources plc.

Case written in 2008 Geography: India, UK Event Date: 2003
Describes how and why the Vedanta Group shifted its primary listing from Mumbai (India) to London (UK). Raises issues of valuation and corporate governance.

Fannie Mae: Accounting for Interest Rate Caps.

Case written in 2005 Geography: US Event Date: 2002
A case on the intricacies of hedge accounting under the US accounting standard SFAS 133. The issue involves the separation of the value of an interest rate cap into time value and intrinsic value. The case also raises issues about the correct application of the accounting standard (APB 20) and the distinction between change of accounting principle and correction of accounting error

Wipro's Billion Dollar Hedge.

Case written in 2005 Geography: India Event Date: 2004
A case on foreign exchange risk management involving the hedging of anticipated foreign currency revenues. The case raises issues of risk management policy, hedge accounting and exchange rate forecasting.

Ashanti Goldfields Company Limited (with Samir K. Barua).

Case written in 1999(revised in 2002) Geography: Africa (Ghana/Tanzania) Event Date: 1999
A case on the use of derivatives in managing commodity (gold) price risk covering strategic reasons for hedging, the linkages between corporate strategy, capital structure and the hedging strategy, as well as the risk analysis of derivative positions.

Arvind Mills Limited.

Case written in 1999 Geography: India Event Date: 1998
Case on the evaluation and use of swaps highlighting the problems in evaluating a swap in a highly illiquid and turbulent market.

Bank NISP (with V. Raghunathan and Chetan Bhagat).

Case written in 1998(revised in 2000) Geography: Indonesia Event Date: 1998
As Indonesia faces the full brunt of the Asian crisis, a small, well managed, healthy bank confronts difficult strategic choices in the face of a regulatory regime biased towards big banks.

Daewoo Group.

Case written in 1998(revised in 2000) Geography: Korea Event Date: 1997
As the Asian crisis hits Korea, time is running out for one of its most ambitious and heavily indebted conglomerates (chaebol).

Siam Cement Public Company Limited (with V. Raghunathan).

Case written in 1998(revised in 2000) Geography: Thailand Event Date: 1998
When the Thai baht plunged against the dollar in 1997, the billion dollar foreign exchange loss on Siam Cement's dollar loans exceeded the company's net worth. With hundreds of millions of short term debt falling due soon, the company must restructure its debt and its business to survive.

Phatra Thanakit Public Company Limited (with V. Raghunathan)

Case written in 1998(revised in 2000) Geography: Thailand Event Date: 1997
In the midst of the Asian crisis, one of Thailand's leading finance companies faces a grim future as rising loans losses wipe out more than half its capital.

SK Securities (with V. Raghunathan).

Case written in 1998(revised in 2000) Geography: Korea Event Date: 1997
A case on the legal risks in OTC derivatives. When a derivative transaction on the Thai baht between a top US bank and a leading Korean financial services firm leads to losses of over $500 million, it ends up in the courts in both Korea and US.

Eurotunnel: Debt Renegotiation (with N. Venkiteswaran).

Case written in 1997 Geography: Europe (UK/France) Event Date: 1996
Complex case covering (i) corporate financial restructuring under financial distress, (ii) infrastructure financing and restructuring, or (iii) shareholder value management under financial distress

Eurotunnel: Foreign Exchange Exposure, 1997.

Case written in 1997 Geography: Europe (UK/France) Event Date: 1996
A capstone case on the measurement and management of foreign exchange exposure. Highlights (i) the meaning and measurement of foreign exchange exposure in the case of a company with global operations and a global shareholder base, (ii) the use of operating decisions and policies to manage foreign exchange exposure, (iii) the role of creditors and other stakeholders in determining the risk management policies of a company.

Aokam Perdana Berhad (with V. Raghunathan).

Case written in 1997 Geography: East Asia (Malaysia/Indonesia/Singapore) Event Date: 1997
Case on a dual currency convertible bond highlighting valuation and risk analysis of a complex financial instrument in an international context.

Reliance Industries Limited: Global Financing Decisions

Case written in 1997 Geography: India Event Date: 1992-1997
Case on international financing decisions covering capital structure decisions, choice of maturity, market timing, and foreign exchange risks.

Coimbatore Yarns' Mark Receivables (A) and (B) (with S. K.Barua)

Case written in 1997 Geography: India Event Date: 1993
Case on foreign exchange risk management covering currency of invocing, transaction exposure and accounting implications of forward contracts.

Essar Steel Limited (1996)

Case written in 1997 Geography: India Event Date: 1996
Sequel to Essar Steel Limited (1993) and (1994). Apart from raising the issue of the various risks involved in a complex financial instrument (with the benefit of some hindsight), the case highlights difficulties in hedging foreign exchange risk of a foreign currency convertible bond. The case also brings out several issues related to financial distress.

Essar Steel Limited (1994): Comparing Cost of Funds

Case written in 1997 Geography: India Event Date: 1994
Sequel to Essar Steel Limited (1993). Apart from raising the issue of true cost of borrowing (with the benefit of some hindsight), this case brings in the added dimension of comparison with a competitor who achieves an apparently cheaper financing.

Essar Steel Limited (1993): Valuation of Euro Convertible Bonds

Case written in 1994(revised in 1997) Geography: India Event Date: 1993
Case covering valuation of foreign currency convertible bond with embedded call and put options. Apart from issues in option valuation, the case raises issues of exchange risk, interest rate risk and highlights the true cost of borrowing for a company issuing a complex financial instrument.

TISCO Rights Issue (A): Hobson's Choice (with Samir K. Barua)

Case written in 1992 Geography: India Event Date: 1992
Comprehensive case covering fundamental analysis, asset allocation, market risk, hedging and short sale possibilities, linked issue of multiple instruments, inter-linkages between operations in primary and secondary markets. This is the capstone case in a series of cases revolving around a public issue by one of India's largest private sector companies.

TISCO Rights Issue (B): Strength of Foundations (with Samir K. Barua)

Case written in 1992 Geography: India Event Date: 1992
A case on fundamental analysis. Complexities of adjustment for bonus and rights issues in applying the Gordon dividend growth model.

TISCO Rights Issue (D): The Elusive Beta (with Samir K. Barua)

Case written in 1992 Geography: India Event Date: 1992
Case on the mechanics and subtleties of beta computation (beta is a measure of risk in modern portfolio theory)

TISCO Rights Issue (E): Unstable (?) Betas (with Samir K. Barua)

Case written in 1992 Geography: India Event Date: 1992
A case on the stability of betas over time particularly changes in betas induced by environmental changes like deregulation.

Of (Human) Bond(age) (with Samir K. Barua)

Case written in 1990 Geography: India Event Date: 1990
A case on bond portfolio management focusing on the use of duration to control interest rate risk.

Razor's Edge 1990 (with Samir K. Barua)

Case written in 1990 Geography: India Event Date: 1990
A case on stock portfolio management focusing on tactical asset allocation.