Sucheta Dalal :Clean accounts?
Sucheta Dalal

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Clean accounts?  

Aug 21, 2005

The Securities and Exchange Board of India (SEBI), we reliably learn, is all set to send notices to both the Ambani brothers over the controversy generated by the manner in which details of the split and demerger of group companies were made known to shareholders. And whether the announcements met with all the requirements of good governance that both brothers have sworn by in the last nine months. The funny thing about governance is that it is not about making allegations but following up on details. For instance, remember the Reliance Capital board meeting on April 25, when Amitabh Jhunjhunwala, an Anil Ambani confidante, raised a storm over the sale of its indirect shareholding in IPCL? He put in a dissent note and refused to sign the accounts. Then on May 5, Anil Ambani had refused to sign the accounts of Reliance Industries alleging absence of “relevant information and disclosure”. At the August 3 board meeting, when Anil stood up as the first speaker after the accounts were introduced, he was expected to reiterate his objections. Instead, he made an emotional speech in which he even expressed confidence in brother Mukesh’s leadership of Reliance. Last week, Reliance Capital held its board meeting at Jamnagar. But, shareholders say the director who dramatically dissented on April 25 and refused to sign the accounts, was quiet this time. Will the regulators now ask the questions that the directors forgot?


Right information


After our report last week pointed out that the GV Films’ rights offer has more negative disclosures than positive ones, a dozen investors have written to ask if they should invest in the issue. Newspapers ought not to dish out investment advice, but the facts should speak for themselves. So here are more details that SEBI’s primary market department seems to have overlooked. GV Films, which is out to raise Rs 40 crore from investors, was in disarray after the death of its promoter in May 2003. But changes in management have probably been at work much earlier. In February 2004, Mahadevan Ganesh, A Venkataramani and P.R. Ramanan were appointed to the GV Films board. Last week, we wrote about Venkataramani’s links to defaulter companies. Mahadaven Ganesh had been issued 10 lakh equity shares at Rs 55 each against Internet rights for 400 films in March 2000. Do Internet rights really fetch such value? The company seems to put a huge premium for these rights, without any specifics. For instance, in September 2000, the company had issued 1.25 crore shares at a premium of Rs 60 for web casting rights for 1,000 feature films and 4,000 Hindi films (are the feature films different from the Hindi films). The beneficiaries of this preferential allotment were — Mahadevan Ganesh, who got another 7.5 lakh shares, Dr J.Murali Manohar received 10 lakh shares, R.V. Gurupadam got 7.6 lakh shares and one Laxmi G. Jhaveri received 99.90 lakh shares. Now, Mahadevan Ganesh is the non-executive Chairman of GV Films and the role of Laxmi Jhaveri who owned 52 per cent of the company at one time is unclear. In May 2004, One World Media Network Infotainment Ltd (OMNI) was merged into GV Films with Rs 30.5 crore accounted for as goodwill to be amortised over a five-year period. Effectively this meant that OMNI’s shareholders were issued Rs 38.5 crore worth of equity shares in lieu of net assets worth only Rs 8 crore. The beneficiaries of the merger were again Mahadevan Ganesh and Usha Venkataramani (connected to a director).


Motivated leaks?


On Thursday and Friday last week, a business television channel repeatedly telecast an unconfirmed report that Geojit Financial Services may acquire UTI Securities. Early Thursday morning a SMS tipping service had already flashed this news. Needless to say the hyped up report saw the stock jump 20 per cent and hit the upper circuit. But Geojit responded to a stock exchange query with a categorical denial saying, “We are not aware of the basis for the said news. Neither have we approached UTI Securities nor they have approached us in connection with the acquisition as of now.’’ But the manipulators wouldn’t let off. The next day, the SMS tip service tried to push another fake report saying that an Arab director was to hike his stake in the company. C.J. George, who heads Geojit is completely perplexed at the reports and strongly refutes them. “We are looking at normal growth opportunities, but they are at a preliminary stage.’’


Close connections


Now that the Specified Undertaking of UTI (UTI-I) is to be wound up, the government has to find ways to sell its assets. Among these is a valuable 10 per cent stake in ITC, which has been coveted by its biggest investor BAT Industries of the UK for almost a decade. But the big surprise, say reliable sources, is that the Finance Ministry has asked S.B. Mathur, Administrator of UTI-I, to discuss the sale with the ITC chairman. What makes the situation even more curious is that S.B. Mathur is also Life Insurance Corporation’s nominee on ITC. Did someone say conflict of interest?



-- Sucheta Dalal