Sucheta Dalal :Ambani companies: Fall from the pedestal
Sucheta Dalal

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Ambani companies: Fall from the pedestal  

July 8, 2011

With senior employees in jail and investors losing money, Dhirubhai Ambani’s legacy looks badly tarnished

Sucheta Dalal

All of a sudden, their immense wealth, access to political power, ability to scuttle all investigation for wrongdoing and their media clout don’t seem to be working anymore. For the first time in over 30 years, the business empire that Dhirubhai Ambani built, through fair means and foul, has lost its glamour. This is evident in a spate of critical, cynical media reports and the rapid decline in the stock price of Reliance group companies, whether controlled by Mukesh or Anil Ambani.

Even when Reliance (headed by an ailing Dhirubhai Ambani) battled Indian Express and the VP Singh government in the 1980s, or the Ambani siblings fought a more bloody war a few years ago, there was a general sense that business would bounce back and emerge stronger, once they buried the hatchet.

Instead, what we are witnessing in 2011 is a never-before sense of derision from investors and media about their tall claims and manner of doing business. We have already pointed out that investors’ distrust is evident in the steady decline in the share price of all Reliance group companies. But, the bigger worry, in the coming years, will be their ability, especially of the Anil Ambani group, to hire appropriate talent to head their enormous business empires.

In the past year, there has been a stream of exits from this group. In October 2010, Inder Bajaj, who headed Reliance Infratel, had quit. The turning point now would be the imprisonment of three top executives of Reliance Communications—Gautam Doshi (managing director), Surendra Pipara and Hari Nair since early April. Soon after, SP Shukla, CEO of Reliance Infratel and two other senior executives (Arun Sur and Jagbir Singh) quit. When Satish Seth, a close aide of Anil Ambani, told the Central Bureau of Investigation (CBI) that he was only a consultant and Gautam Doshi was responsible for all decisions relating to Reliance ownership and exit from Swan Telecom, it triggered the exit of Hasit Shukla, a compliance officer and company secretary of Reliance Communications.

No large and complex group can run without a team of smart leaders in charge of various group companies and functions. But Reliance, under Dhirubhai and later his sons, has always operated a little differently. The family worked with a set of extremely close confidantes and trusted lieutenants. Professional managers reported to this inner coterie which had all the powers but never ever signed any document. In fact, a close aide of Mukesh Ambani routinely boasts that he would never sign a paper or even send an email directly. Satish Seth was part of the inner circle of the combined Reliance empire and privy to all its secrets even before he chose to align with Anil Ambani, along with Amitabh Jhunjhunwala and Tony Jesudasan, two others of the inner coterie. This was a well thought out strategy which ensured that government investigation agencies found it extremely difficult to target the inner circle directly. It also gave them time and space to work their neta-babu network to bury all investigations and protect executives who signed the business deals.

It worked perfectly for over 30 years, until the events of the 2G telecom scandal spun out of everybody’s control. The arrest of senior executives, and Satish Seth’s statement to the CBI, has changed everything. It has sent waves of fear through the group’s managers and should even be a lesson for the managers of other family-controlled companies. Many competent senior executives realise that a fat pay package cannot compensate for becoming a scapegoat for the group’s dubious activities. Clearly, Anil Ambani realises this. On the 55th day since they were imprisoned, Anil Ambani sought permission to meet his executives in Tihar Jail. On the same day, a cute media leak said that Tina Ambani had sacrificed her annual holiday to console the distraught wife of Gautam Doshi. Some would say, it hardly means much and this is the least they can do.

Remember, Satish Seth was among the four key executives along with Anil Ambani and two group companies (Reliance Infrastructure and Reliance Natural Resources Ltd) barred from investing in the secondary market as part of the settlement order negotiated with the Securities and Exchange Board of India (SEBI) along with a Rs50-crore payment. The settlement allowed the Anil Ambani group to bury a huge scandal over misuse of accounts of some diamond traders and transactions in excess of $2 billion. While SEBI, and its chairman CB Bhave, is credited with ‘being tough’ in that case (by the media and Mr Bhave himself), the fact is that the consent order is opaque and deliberately hides the exact nature of charges as well as the findings, including the report it had received from the Reserve Bank of India.

Things can only get hotter. The government is in complete disarray over how to deal with campaigns against corruption and the Lokpal Bill to make politicians and bureaucrats more accountable. Meanwhile, more telecom scandals are spilling out into the open (the Dayanidhi Maran-Aircel connection and the alleged private exchange that he created by appropriating over 300 phone lines from Bharat Sanchar Nigam), and with the Supreme Court spotlight firmly on them, investigation agents are hardly in a mood to jeopardise their careers. As we said in the previous issue of Moneylife, the group’s iffy reputation has had a deleterious impact even on its mutual fund business, which has so far performed excellently.

The Mukesh Ambani-controlled Reliance Industries Ltd (RIL) has been equally beleaguered by exits of senior personnel in various businesses such as Reliance Retail (Raghu Pillai, Sanjeev Asthana and Gunender Kapur). Also, its retail rollout and the performance of its KG-Basin oil wells has been such a damp squib that investors aren’t impressed by Mukesh Ambani’s promise of a digital revolution through an “end-to-end solution across the digital value chain.” Worse, nobody is clear whether production from the KG (Krishna-Godavari) Basin wells is being deliberately held back or whether the expectations themselves were unrealistic.

The Reliance scrip, once a bellwether stock, has grossly underperformed the market during the last two years of the bull run. While the group grew rapidly and set records in project implementation, large institutional investors were willing to turn a blind eye to the fact that large chunks of revenues went to private companies of the promoters. The strategy was simple.

Family-owned affiliate companies got supply contracts from the parent and were built through hefty loans from the parent company. When sufficiently valuable, they were merged with RIL in a ratio that helped increase the Ambani family stake in Reliance. The business routed to such privately-owned companies of Mukesh Ambani has now ballooned to over Rs4,000 crore, according to a digital media report. None of this mattered when the group was growing at breakneck speed and rewarding investors. When the stock underperforms so badly and there are no clear answers, investor confidence is shaken and questions are bound to be asked.

Sucheta Dalal is the managing editor of Moneylife. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at


-- Sucheta Dalal