Sucheta Dalal :FM's intervention
Sucheta Dalal

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FM's intervention  

Dec 6, 2004

We learn that the public fracas at India’s biggest private sector company has gone from ‘boil’ to ‘simmer’ because of some behind-the-scenes intervention by Finance Minister P. Chidambaram. The FM has apparently spoken to both brothers and has asked them to cool down. He has also requested ICICI Bank CEO K.V. Kamath to talk to them and help resolve their differences or to arrive at a settlement. Sources in the know also say that Kamath has already been acting as an informal intermediary between the brothers for almost a year.

Interestingly, while the Ambani brothers are at loggerheads over the control of Reliance Industries, both have negotiators with the initials A.J. That’s Amitabh Jhunjhunwala for Anil and Anand Jain for Mukesh. The question is, will the negotiation fare any better now that the war is out in the open? Will the brothers be able to work together again? Sources close to the family say working together as before is out of the question. The only settlement possible is if Mukesh Ambani offers, what many think, ought be a fairer deal to Anil. Meanwhile, legitimate questions will continue to be asked about the cost of acquisition of the 55 per cent stake in Reliance Infocomm by the Mukesh Ambani family (they got the shares at par value) as compared to the price of Rs 50 per share paid by Reliance Industries — the public limited company.

The deal

What was the deal that was rejected outright by Anil Ambani? Information from the two camps and corroboration from other sources reveals this: broadly, Anil was offered ‘management charge’ of Reliance Energy Ltd (REL) and Reliance Capital, but no clear offer to divide the assets to give Anil a controlling stake that would secure his role in the two companies. Further, Reliance Industries would ‘lend’ around Rs 10,500 crore to REL for its projects. This is approximately equal to RIL’s investment in Reliance Infocomm. But there is a catch. The money for REL’s growth will be ‘lent’ and not offered as a RIL investment; which means that it is returnable. There is also understood to be a cash settlement offer over and above the two companies. Sources in the Anil camp confirm that Anil had rejected the first offer; they say he has three major demands. First, that Mukesh must clarify details about the 29 per cent shareholding of the promoter family in RIL that is held through a web of investment companies. Secondly, Mukesh must explain his own 55 per cent shareholding (with his family) in Reliance Infocomm as well as the Rs 15,000 crore (they claim) that has been invested in it through RIL and Reliance Capital. Thirdly, he must agree to draw up a shareholders’ agreement for sharing of powers between the brothers in RIL, but Anil in turn will accept Mukesh as chairman. Clearly, there will have to be a comedown.

JPC block

Barely has the primary market begun to look up and the Association of Merchant Banks of India (AMBI) is back to lobbying for a dilution of rules and restrictions applicable to initial public offerings (IPOs). First on their list is the one-year lock-in on preferential allotments — at least to foreign institutional investors (FIIs). In their eagerness to please issuer companies and large investors, AMBI has forgotten that a ‘preferential allotment’ amounts to favoured treatment for select investors in the expectation of capital appreciation. The lock-in ensures that such investors don’t make a fast buck by quickly flipping preferentially allotted shares while others are denied similar opportunity. Scamsters abused such allotments in 2000 and investor groups have been lobbying for a ban on preferential allotments altogether. In fact, the Joint Parliamentary Committee on the Ketan Parekh scam had also noted their concern. Para 14.55 says, ‘‘An Investors Association has made a plea for banning preferential allotment of shares, except for foreign collaboration, on the ground of (them) being inherently anti-investor and being a powerful tool to manipulate market prices of shares. The Committee noted that Sebi has since decided to bring preferential allotment of shares under the takeover code and will subject it to stringent discipline. This step should not eliminate preferential allotment of shares to legitimate purposes like giving equity stake to a technical collaborator but should be strictly watched to prevent misuse.’’ The JPC wanted the Department of Company Affairs to frame rules for governing preferential allotments. Clearly, AMBI and the regulators need a firm reminder.

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-- Sucheta Dalal