The Watchful have not forgotten: Unreliable Reliance
- Subject: Watchful have not forgotten, Unreliable Reliance, Duplicate Share scam in 1995. Google Search throws up below, which was swept under the Carpet by nexus then & now, with holding skeletons.
Troubles at Reliance Worry Investors
By Cesar Bacani
and Shirish Nadkarni / Bombay
"WHEN AN ELEPHANT WALKS, the dogs bark," Dhirubhai Ambani once said. He was responding to charges of improper business dealings against Reliance Industries, the textiles and chemicals giant he founded in 1968. These days, the yapping may be getting to India's largest private company. In November, the Bombay Stock Exchange (BSE) suspended trading in Reliance for three days because of alleged negligence by the company's in-house registrar in issuing duplicate shares. Then reports surfaced that the registrar also switched certificates in making stock transfers. After announcing a probe into the two cases, the government named a commissioner to look into the Reliance group's alleged non-payment of income tax. Then last week, the Central Bureau of Investigation charged Reliance with fraud in the import of raw materials in 1985.
"The net is closing in on [Ambani] from all sides," says stockbroker Parag Parikh. Politicians also claim Reliance has a too cozy relationship with the Unit Trust of India, the country's largest institutional investor, and accuse Ambani of plotting to to monopolize the country's telecommunications industry. MP Gurudas Dasgupta, a member of the ruling Congress (I) party, has resurrected charges of insider trading over the 1994 merger of two Reliance subsidiaries with the flagship company. People close to Ambani, including his physiotherapist Dr. Rajul Vasa, bought shares in the subsidiaries months before the deal was made public. The agreement exchanged one Reliance share for every four in the two subsidiaries. Last week, however, the government said it would not reopen an investigation.
Although Ambani declined all interview requests, the Reliance publicity machine worked overtime. The company described Dasgupta's accusations as "baseless." Ambani also took on the BSE. He threatened to delist Reliance and three subsidiaries from the bourse, the largest of India's 22 stock markets. With market capitalization of nearly $3 billion, Reliance accounts for 10% of the BSE's 30-stock index. In the end, Ambani withdrew his delisting request, but not until he had listed the four firms on the rival National Stock Exchange. The fracas took its toll. In the past six months, Reliance has lost a third of its value on the BSE -- and is down more than 50% from its highs in 1994 (see chart, page 46).
But the bottom line remains solid. Analysts forecast net profit for fiscal 1996 to top $375 million, up 23% from 1995. Trading at a multiple of just 7.4 times prospective earnings, Reliance is one of Asia's cheapest blue chips. That's not good news for the company's more than 3 million stockholders -- or nearly enough of an inducement for many international fund managers. "Nobody has come to grips with the full extent of the duplicate-shares problem," complains Anand Trivedi, a fund manager with Credit Lyonnais International Asset Management in Hong Kong. "There is a loss of confidence in the top management of Reliance."
Some see the whole market getting tarred. "If emerging markets like India are to be taken seriously, regulators should be seen to have the upper hand," says Ayaz Ebrahim, a Hong Kong-based fund manager with Indosuez Asset Management Asia. Until recently, he notes, foreign investors regarded Reliance as a "bellwether stock to get exposure to the Indian growth story." Reliance became the first in India to issue global depository receipts in 1992. Says Ayaz Ebrahim: "If the company is allowed to get on with its business, it would be a very attractive stock. Unfortunately, a lot of politics get into play, there are a lot of egos involved and poor minority shareholders suffer as a result."
Reliance's three-day suspension from the BSE has its roots in 1994. In January of that year, stockbroker R.D. Choksey and Co. delivered 26,650 Reliance shares to another broker, V.K. Jain and Co., which had purchased them for private company Opera Investment and Trading. The certificates were in the names of Dr. Vasa and her husband Gajendra. In April, the Vasas wrote to Reliance Consultancy Services (RCS), the group's in-house registrar, requesting the issuance of duplicate certificates for 33,809 Reliance shares that the couple said had been misplaced. RCS complied four months later. The Vasas later sold the shares to Merrill Lynch.
Meanwhile, Opera Investment, an associate firm of the Reliance group, sent the 26,650 shares in the names of the Vasas to RCS. But the registrar said it could not transfer ownership because the signatures on the transfer deeds did not match those in its records. Broker V.K. Jain asked the BSE to compel R.D. Choksey to give it shares and transfer deeds that would satisfy RCS. In September last year, exactly 13 months later, the bourse asked Reliance for details about the case. The company responded after a week. On Oct. 9, the BSE's governing board instructed the Defaulter Committee to proceed with the recovery of claims against Choksey.
The bombshell came Nov. 14 when the BSE cited RCS for negligence in issuing the Vasas duplicate shares and suspended trading in Reliance shares. RCS denied involvement in any fraud. Reliance appealed to the Securities and Exchange Board of India (SEBI) and the Ministry of Finance, but the suspension went ahead. On Nov. 27, an infuriated Ambani told the BSE that he wanted to delist Reliance and three subsidiaries. At the same time, he asked the National Stock Exchange for permission for the four firms to be traded there. The NSE approved the request in two days.
BSE president Kamal Kabra maintains that Reliance does not meet the requirements for delisting (see interview, page 47). Asked by the bourse to reconsider, Ambani withdrew his request Dec. 5. Reliance later quietly paid the BSE $305,000, representing the value of the shares and fines. "Whatever the legalities of the case, Reliance is now in the clear," says former BSE president Bhagirath Merchant. "It has accepted its mistake." He says "no further punitive action" can be taken against Reliance in the case. But SEBI and the Department of Company Affairs are still investigating. Two nagging questions: Were the shares Choksey sold those that the Vasas said were misplaced? If so, who masterminded the scam?
Reliance faces other problems. The government is also probing the more serious charge of alleged share switching. In 1991, the state-run Unit Trust of India (UTI), bought 2.4 million Reliance shares from the secondary market. The certificates were duly sent to RCS for transfer to UTI.
At the same time, Madras-based Fairgrowth Financial Services sent 1.5 million Reliance shares to RCS for transfer to its name. But Fairgrowth later authorized its broker, Pallav Sheth, to withdraw the certificates and sell them because the stock price had soared to an all-time high. Sheth sold 1.45 million shares even though the stocks were not yet in his possession. As the buyers demanded delivery, Fairgrowth was implicated in the massive 1992 securities scandal involving broker Harshad Mehta. A special court set up to investigate the fraud prohibited the sale of Fairgrowth-owned shares, including the 1.5 million Reliance certificates.
Last year, Fairgrowth petitioned the special court to order RCS to reveal the whereabouts of the certificates. The registrar submitted a list on Nov. 27. On the same day, UTI released a press statement saying 870,000 shares it bought in 1991 had been substituted with certificates tainted by the 1992 securities scandal. There was more. UTI later said a total of 4.69 million shares it owns had been switched. RCS admitted swapping some 7 million Reliance certificates bought by UTI and others, but stressed that "the new lot of shares were genuine, i.e, the same were neither fake nor forged nor spurious nor duplicate shares." A Reliance spokesman said the substitutions happened between March and September 1992 because of a "technical lapse." New shares are being issued to replace the switched ones.
RCS insists that it broke no law, though the registrar admits it should have informed the affected shareholders. (One possible motive for the switching: to help stockbrokers desperate to make good on shares they didn't have but sold anyway.) But investors were appalled. "What's frightening is the sheer lack of accountability of the custodians," says Mark Mobius, president of Templeton Funds. "The lack of systems and transparency makes us ultra-cautious about making major investments here."
There are other reasons. Some investors still resent the issuance of $300 million worth of paper in 1994, which diluted share prices, just weeks after Reliance officials said there was no need to raise new money. And the company's current problems "come in the wake of the Enron and Kentucky Fried Chicken disputes and the uncertainty surrounding the general elections," says Gary Greenberg, who runs an Indian fund for Peregrine Asset Management. Opposition-ruled Maharashtra state had scrapped a $2.9-billion power plant being built by America's Enron Corp., which a previous administration had approved. A compromise was struck last week. Municipal authorities in New Delhi and Bangalore closed KFC outlets in their jurisdictions, saying they were serving unhealthy food. The courts have ordered the restaurants reopened. The government of Prime Minister P.V. Narasimha Rao, which must hold elections by May this year, is facing a strong challenge from the oppositionist BJP party (see THE NATIONS, page 27).
Reliance is especially vulnerable to political developments because its success is seen as a result as much of political patronage as hard work and luck. Once linked to Rao's Congress group, the group is now said to be backing the BJP. Some see the government probes as part of the political power play. If so, Reliance can count on its new friends. Says BJP general secretary Pramod Mahajan: "Even the assassins of Mahatma Gandhi and Indira Gandhi were given a fair trial, which took a few years to complete. Reliance should not be pre-judged."
What now for the conglomerate? "This company has grown big by continuously tapping the capital markets," says Trivedi. "Next time it tries to do that, it will find investors less enthusiastic." But the fund manager says all is not lost: "Reliance can put its house in order and avoid antagonizing minority shareholders." Adds Ayaz Ebrahim: "Reliance is a world competitor and its managers are an impressive lot. But its shares will continue to trade at a discount unless management does something to change the widespread perception that it is unfair to minority shareholders." And deal with the damaging accusations of illegal business practices.
-- With reporting by Assif Shameen
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- The deplorable utterances of Dhirubhai decades ago were insult to the Indian public at large and the government in particular!
It must be still fresh in the minds of many observers decades ago and now reached/ reaching their extinction that RIL executives were caught red handed in Delhi's luxury hotels with government files!
What more is required to confirm Kejriwal's charges against Reliance and the ministry/government?! Over the decades Reliance have subdued the government,nay created a phobia in the government in time!!!
While the "phenomenal growth" of RIL by non righteous means is as a result of "buying over" the government and its people for themselves, whichever the then party in power, almost all the growth and wealth that we sea as belonging to Reliance appears to be amassed by depriving the indian public at large at the behest of the government /ministries, as it appears to be!! And at that rate claim of providing employment to millions is just pea nuts!
While we proudly claim to have secured freedom from (serving) BRITISH Empire the hard way and have even united nearly 600 princely states (mostly dictatorial),the rulers of our country, under the garb of democracy, appear(to me) to be serving the RELIANCE empire!
An India abandoned by the rulers!! It is not economy that is thriving but poverty and starvation deaths, there is no wonder!!