Guardians of Grail

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Indian Insurance Companies namely LIC, GIC, NIC, OIC, UIC & NIAC hold 21.50% [link widoczny dla zalogowanych] of the equity capital of Reliance Energy Limited with LIC alone holding 14%.Individual Indian Public hold 12% of REL. Reliance Energy Limited (REL) is a 78 years old private sector power major engaged in power generation and distribution. REL is a part of and controlled by the Anil Ambani Group.

REL being one of the largest private sector player in the Power generation and distribution, has been awarded large and mega power projects for 24200 MW. These power projects have been awarded either directly to REL or to its nominees on the strength of its financial [link widoczny dla zalogowanych] and technical strengths. REL is having the capabilities to execute all these projects on its own and its financial position is strong enough to raise all the required finances for these projects. These power projects include prestigious projects [link widoczny dla zalogowanych] like Sasan, Dadri, Rosa etc.

REL, considering its eminent position was projected as and perceived to be the main vehicle for execution of all major power projects. In fact bidding for all the major power projects have been done by REL or by its associates with the technical and financial support of REL.

However, a careful study of the draft red herring prospectus (DRHP) filed by another Anil Ambani group company namely Reliance Power Limited (RPL), proposing to come out with a Public Issue of 130 Crore Equity shares of Rs.2 each, reveals that the Power Generation Business opportunities secured in the name of REL and those secured with the strength of REL have been transferred to the said Company RPL by means of some internal MOUs & understandings. As per the said DRHP, RPL would be implementing 12 Power projects in India having a capacity of 24200 MW. Further the draft prospectus unambiguously declares that REPL will be the primary vehicle for investments in the power generation sector by the ADA Group. The implication of this is very serious for the future prospects of REL and its shareholders.

On the analysis of the RHP, it has come to light that RPL is a partnership between the Chairman of REL, namely Mr. Anil Ambani/his Private Group with REL itself. Mr. Anil Ambani, through his personal investment companies is holding 50% stake in REPL.

With this clandestine transfer of projects for 24200 MW from REL to REPL, the Shareholders of REL have been deprived of the entire power generation business prospects to be accrued to them. By means of such a transfer of business and creation of another shell company to issue public shares, now the power generation profits will accrue to the new company REPL in which Anil Ambani holds 50%. The new Company has no [link widoczny dla zalogowanych] resources at its command for executing these projects and instead is totally dependent on REL for [link widoczny dla zalogowanych] entire support – be it technical, manpower, commissioning, even guarantees for raising finances

As per the various announcements and indications, the said Company, RPL is proposing to mop up about Rs.8000 Crores of public money through this initial public offer. As per recent news report by one of the Lead Managers, UBS, RPL has been valued at about Rs. 70000 crores.(at a minimum) RPL itself has no experience or capability of implementing these projects and thus the valuation of the Company is purely reflecting the strengths of REL for these projects. This entire valuation of 70000 crores is the value of the projects that have been stripped off from REL as a scheme for personal enrichment of Mr. Anil Ambani. If this Public Issue happens Mr Anil Ambani will enrich himself by Rs 35000 crores , at the expense of crores of Indian public. .
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The Companies Act prescribes a fiduciary duty on the Directors of a Company to ensure that the assets of the Company are used for the purposes of the Company and enhance the wealth of its shareholders. The Act restricts in several ways any transaction between a director and the Company to ensure that the director should not misuse his position for any personal gain.

The Act also provides that significant assets of the Company can not be transferred without the approval of the shareholders.

However all these have been given a complete go-by in [link widoczny dla zalogowanych] REL. Here, the Chairman of the Company has himself entered into a partnership with REL and transferred the valuable assets in the form of projects awarded to it to the partnership company. He is also using all the resources of the Company for his personal enrichment at the direct cost of REL shareholders.

If these projects would have been implemented by REL, the valuation of REL would have been higher by this amount and thereby benefiting the shareholders of REL directly and millions of Indian Public [link widoczny dla zalogowanych] indirectly through the gains made [link widoczny dla zalogowanych] by the Public Sector Insurance Companies.

It is surprising to note that LIC being one of the major shareholder and having a nominee director on the Board of REL, in Mr V.R Galkar has remained a mute spectator and has not even attempted to stop this . The Analysts suspect collusion between the promoters of ADA group and the nominee director.

It is evident that the LIC & other Insurance companies have failed in their duty and obligation to protect the interest of the general public who have invested their hard earned savings in the Insurance Companies.

Analysts say that SEBI, has a duty not to allow this public issue and if it does , it will not be discharging its responsibilities under SEBI Act, which is to protect the interests of investors in securities. Allowing this public issue will set a dangerous precedent and Foreign Investors will lose faith on the integrity of Indian capital market regulator.

In this context, the observations of Mr Damodaran, chairman SEBI, as reported in Economic Times on 15th October 2007, is very relevant.

“Institutional Investors would have to play a proactive role to ensure that promoters did not gain at the expense of minority shareholders” “When we talk about Institutional Investors with large holdings, are they [link widoczny dla zalogowanych] assertive enough? There are [link widoczny dla zalogowanych] companies where institutional investors together hold around 30% stake but, do they attend AGMs. Have they been heard raising issues that they are un happy with at AGMs?

Perhaps Mr Damodaran had the proposed public issue of [link widoczny dla zalogowanych] Reliance Power in mind when he uttered these words.

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