Business

The Loser Is You

The Mukesh-Anil spat has broken the RIL cult of silence. Both brothers were milking shareholders' funds into little-known companies. But no one spoke.<a href=pti_coverage.asp?gid=249 target=_blank> Updates</a>

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The Loser Is You
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Tearing At The Parent
Family members of Mukesh's loyalists and Anil's close relatives own firms that have direct dealings with RIL; woven sacks made by Jai Corp supplied to RIL, the flagship's waste management handled by Polyole Synthetics, the largest consignment agent of RIL close to Anil.

Rs 3,500 crore commitment sought by Reliance Energy, run by Anil.

Rs 18,000 crore commitment by Reliance group as direct equity, preference shares, bonds, guarantees and handsets purchased on behalf of Reliance Infocomm.
Gas commitment sought by Reliance Energy for its proposed project in UP.

Rs 100 crore for pet hospital projects of family members -- Rs 82 crore for one that Nita, wife of Mukesh, is interested in and another that Anil is.

Huge sums diverted from Reliance Infocomm for investment purposes—the money was invested in ONGC and TCS IPOs.

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"Reliance...endeavours to follow the principles of...full disclosure...and communications."
Dhirubhai Ambani, June 2001

Outlook
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Reliancewill...endeavour to unlock value from its investments...for the benefit of its shareholders."
Dhirubhai Ambani, June 2001

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"I took care of them (the Reliance family of shareholders).... You have the responsibility to protect and promote their interests."
Mukesh Ambani, quoting Dhirubhai, October 2002

Apart from his two sons, Dhirubhai also expected the six independent directors on RIL's board to do the same. Anil's camp says that the RIL board didn't know anything about actual exposure in Reliance Infocomm. Mukesh's side feels Anil went ahead and announced his projects—be it the power project in UP or his decision to bid for airport privatisation deals—on his own without referring the matter to the board. When Outlook asked two independent directors, they refused to comment. "I can't tell you anything that transpired in board meetings; I'll say that for every company on whose board I am, and not just for Reliance Industries," says 75-year-old D.V. Kapur, former secretary (chemicals and petrochemicals), who's been RIL director for four years. In the same vein, 65-year-old Mahesh P. Modi, former bureaucrat and RIL director for three years, says, "The fight has caused great anguish for all of us and you can understand that I don't want to comment on anything."

But without saying whether the board was aware of some of the issues mentioned above, Kapur is categorical that "all decisions by the board were through complete consensus.Not one director complained or disagreed." Which implies that if the board didn't know about certain things, then whatever problems Mukesh or Anil had with each other's plans were discussed through personal e-mails and letters.That does seem to be the case if one looks at scores of mails written by the brothers even while they haven't been on talking terms for months.

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It really didn't matter. Because, as Kapur himself admits, no one questioned anything anyway at board meetings. As one of Anil's aides told Outlook last month, "It's only a board consisting of rubber-stamp directors. They just nod their heads in approval for everything." If this camp has to be believed, many of the independent directors are there because they happened to be on the right side of Reliance during their bureaucratic tenures. For instance, Kapur was the government secretary that gave the licence for RIL's Hazira plant. "So, you are saying that they rewarded me 15 years after I retired from government post in 1986? I never met Dhirubhai during my stint in various ministries; in fact, I met him two years after I retired and became an RIL director only in 2001," retorts Kapur.

What were the domestic financial institutions and foreign institutional investors (FIIs) doing about the happenings in RIL? As per current information, the former hold 8.77 per cent stake in RIL, and the latter own 22.85 per cent. Well, one of the domestic institution heads was apparently playing the mediator role to make the brothers come to an agreement. And the FIIs were merely praying that the fight stops soon. Remember one thing, the FIIs knew everything. They have been obliquely talking about Reliance Infocomm's future in several of their analysts' reports. Only, they didn't do anything about it. "We're not active investors, we're typically passive and don't interfere unless things go bad and in extreme cases of frauds. We're not managers, we're investors. And if we feel the business of a company is slipping, we'll exit the stock and find other places to park our funds," feels the chief investment officer of a leading Mumbai-based FII.

Only now that the Ambani battle has dragged on for weeks that CLSA Asia-Pacific Markets, a subsidiary of a leading European bank, has come out with a damning report on Reliance. Of the key issues the report talks about, one relates to the dispute relating to "who's the owner and therefore who controls 29 per cent of the shareholding reportedly held through a web of investment companies." Another one is about "corporate governance issues relating to how independent the board is and whether the interests of the minority shareholders have been compromised." It continues with stating that "Reliance's corporate governance rankings have always been on the lower quartile, and lack of transparency and doubts about board independence have always been known. However, wide publicity of these issues is something new."

We have only a few questions to ask CLSA, other FIIs, domestic institutions and board members. Wasn't it your job to publicise these issues earlier in a similarly strong manner? Wasn't it your job to warn retail investors and small shareholders about these doubts? Wasn't it your job to ensure that investors don't lose their money on the bourses? Wasn't it...? Well, actually forget it. We don't expect you to do these things—now or ever again in the case of other groups. Nice to have known you.


Alam Srinivas, Charubala Annuncio & Saumya Roy with reports from Suveen Sinha and Gauri Bhatia

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