RIL, that had quietly picked a large stake in the Eenadu Group and had it kept that under wraps till now, will indirectly fund this acquisition by bankrolling the promoter group firms through equity convertible debt. In the future this will give it a significant equity stake in Network18 Group, and thereby a large exposure to bustling media sector in India.
Both Network18 and TV18 scrip shot up almost 20 per cent each to hit their respective upper circuit limits for the day on Tuesday. Although, the deal would not immediately call for an open offer for the listed firms, when RIL chooses to convert the debt into equity in the future, it may end up triggering a mandatory open offer.
Either ways, this will give RIL a huge exposure in the media business spanning areas such as television, Internet, filmed entertainment, e-commerce, magazines, mobile content and allied businesses including prime properties such as CNBC-TV18, CNN-IBN, MTV, Colors and moneycontrol.com among others. It will also strengthen the group's new media business with a solid content base for the launch of broadband business housed under Infotel.
Ernst & Young acted as advisors for financial and tax due diligence and valuation of the assets. The legal due diligence was carried out by Khaitan & Co.
Network18-RIL Deal:
Under the agreement, the board of directors of TV18 Broadcast Limited (TV18) on Tuesday approved the acquisition of 100 per cent stake in regional news channels in Hindi namely ETV Uttar Pradesh, ETV Madhya Pradesh, ETV Rajasthan and ETV Bihar and ETV Urdu channel besides 50 per cent stake in general entertainment channels ETV Marathi, ETV Kannada, ETV Bangla, ETV Gujarati and ETV Oriya and 24.50 per cent in ETV Telugu and ETV Telugu News.
TV18 will have board and management control of ETV News Channels and ETV non Telugu entertainment channels. The Board has approved an outlay of up to Rs 2,100 crore for this acquisition.
Additionally, TV18 has an option to buy the balance 50 per cent interest in ETV non Telugu GEC Channels and additional 24.50 per cent interest of ETV Telugu Channels, currently held by RIL Group.
To fund the acquisition, both Network 18 and TV18 in separate board meetings today approved rights issue to the tune of upto Rs 2,700 crore each. Network18, being the promoter and holder of majority equity in TV18, would be subscribing to about Rs 1,400 crore in the rights issue of TV18 – therefore, once this subscription amount is netted out, the net aggregate rights issue of both Network18 and TV18 will result in a fund raising of about Rs 4,000 crore.
The contribution of the current promoter entities of Network18 in these twin issues will be about Rs 1,700 crore. Besides subscribing to their full portion, the promoters of Network18 will also reserve the right to subscribe to any unsubscribed public portion of the rights issues.
It is here that RIL would come in to indirectly fund the transaction. Raghav Bahl, the promoter of Network18 and TV18, has disclosed that promoter companies have entered into an arrangement with Independent Media Trust, a trust set up for the benefit of RIL, to secure the funding required for this purpose.
Bulk of the promoters contribution to the rights issue would come from an investment trust of RIL that will subscribe to optionally convertible debentures of the promoter entities of the Network18 Group.
So even as RIL will have rights to pick a major stake in Network18 group firms in the future, Raghav Bahl as founder and promoter, shall continue to retain management and 51 per cent control over Network18 and 51 per cent control over TV18 through Network18 in the near future.
TV18 will utilise the money to repay the existing debt, fund the acquisition of ETV Channels and fund working capital needs. Network18 will utilise the funds raised to repay the existing debt and subscribe to the rights issue of TV18.
In a statement Bahl, founder, editor & managing director of Network18, said: "By inducting such a significant amount of equity, our balance sheets will become among the strongest in the industry."
RIL's Eenadu Investments:
RIL, through investments of about Rs 2600 crore, by its group companies, currently holds interest in various ETV Channels being operated and managed by Eenadu Group including 100 per cent economic interest in the regional news channels, 100 per cent economic interest in ETV non Telugu entertainment channels besides 49 per cent economic interest in ETV Telugu Channels.
It is not clear exactly when RIL made these investments.
Earlier, Blackstone had struck a deal almost five years ago to acquire a large stake in Eenadu's Hyderabad-based parent firm Ushodaya Enterprises, but the deal had come unstuck as it faced political opposition from other media sector investors in Andhra Pradesh.
While Blackstone initially cut the size of the deal, it later completely pulled out of the transaction after facing delays in securing a green signal from government authorities to complete the transaction.
Thereafter, Nimesh Kampani of JM Financial Group had reportedly acquired a stake in Eenadu. Given the latest announcements, RIL would have later acquired the economic interest in the media group from Kampani.
Incidentally, younger brother Anil Ambani has a large presence in the media business and as per the now defunct non-compete agreement, the two brothers were not allowed to invest in sectors in which the either brother has a business presence. This non compete-clause was scrapped in May 2010 so the investments in Eenadu could have potentially happened thereafter.
Notably, Blackstone's India chief Akhil Gupta was previously with Reliance Group and was a senior member of the team handling the group's telecom venture(before the group was spliced up between the two Ambani brothers).
What Does It Mean For Network18 Group:
By acquiring this strategic control over several ETV Channels, TV18 will have a bouquet of leading television channels.
ETV is one of the leading TV Networks in South India and it is also among the top five broadcast networks in the country. ETV Channels were one of the first entrants in the regional markets and have a considerable viewership base.
On a combined basis, TV18 will be offering a mix of national and regional channels catering to diverse genres like Hindi and regional entertainment; general news in English, Hindi and regional languages; business news in Hindi, English and regional languages; music; kids; devotional and infotainment channels.
Including the soon-to-be-launched services/variants, this combined bouquet of over 25 channels will make Network18 a formidable player in the media & entertainment business.
RIL Biz Diversifications:
For India's most valued company the latest transaction comes as yet another business diversification from its core energy business. The firm that earlier ventured into retail sector and over the past two years has gone pretty aggressive with entry into hospitality(strategic interest in Oberoi Hotels promoter EIH Ltd), financial services(JV with DE Shaw) and broadband (acquired 95 per cent in Infotel for Rs 4,201 crore).
Even as oil & gas sector remains at the core of the company (and its cash cow in the near future), with the latest business diversifications RIL is slowly transforming itself into a conglomerate with diverse businesses.
Besides marking a big bang entry into the media business, the latest deal also brings synergies for RIL's foray into new media sector.
Infotel Broad Band Services Limited (Infotel), a subsidiary of RIL, has also entered into a Memorandum of Understanding with TV18 and Network18 for preferential access to all their content for distribution through the 4G broadband network being set up by Infotel. As per the MoU, Infotel will have preferential access to the content of all the media and web properties of Network 18 and its associates and programming and digital content of all the broadcasting channels of TV18 and its associates on a first right basis as a most preferred customer.
RIL expects digital content from entertainment, news, sports, music, weather, education and other genres will be a key driver to increase consumption of broadband.
Wikipedia, the popular community-edited online encyclopedia, will black out its English-language site for 24 hours to seek support against proposed U.S. anti-piracy legislation that Wikipedia founder Jimmy Wales said threatens the future of the Internet.
The service will be the highest profile name to join a growing campaign starting at midnight Eastern Time on Wednesday that will see it black out its page so that visitors will only see information about the controversial Stop Online Piracy Act (SOPA) and the Protect Intellectual Property Act (PIPA).
The information will urge Wikipedia readers to contact their local congressman to vote against the bills. Other smaller sites leading the campaign include Reddit.com and Cheezeburger.
"This is a quite clumsily drafted legislation which is dangerous for an open Internet," said Wales in an interview.
The decision to black out the site was decided by voting within the Wikipedia community of writers and editors who manage the free service, Wales said. The English language Wikipedia receives more than 25 million average daily visitors from around the world, according to comScore data.
The bills pit technology companies like Google and Facebook against the bill's supporters, including Hollywood studios and music labels, which say the legislation is needed to protect intellectual property and jobs.
The SOPA legislation under consideration in the House of Representatives aims to crack down on online sales of pirated American movies, music or other goods by forcing Internet companies to block access to foreign sites offering material that violates U.S. copyright laws. Supporters argue the bill is unlikely to have an impact on U.S.-based websites.
U.S. advertising networks could also be required to stop online ads, and search engines would be barred from directly linking to websites found to be distributing pirated goods.
Google has repeatedly said the bill goes too far and could hurt investment. Along with other Internet companies such as Yahoo, Facebook, Twitter and eBay it has run advertisements in major newspapers urging Washington lawmakers to rethink their approach.
White House officials raised concerns on Saturday about SOPA saying they believe it could make businesses on the Internet vulnerable to litigation and harm legal activity and free speech.
"We're happy to see opposition is building and that the White House has started to pay attention," said Wales.
News of the White House's comments prompted a prominent supporter of the bill News Corp Chief Executive Rupert Murdoch to slam the Obama administration.
"So Obama has thrown in his lot with Silicon Valley paymasters who threaten all software creators with piracy, plain thievery," he posted on his personal Twitter account Saturday. News Corp owns a vast array of media properties from Fox TV, the Wall Street Journal to Twentieth Century Fox studios.
Wales said the bill in its current form was too broad and could make it difficult for a site like Wikipedia, which he said relies on open exchange of information. He said the bill also places the burden of proof on the distributor of content in the case of any dispute over copyright ownership.
"I do think copyright holders have legitimate issues, but there are ways of approaching the issue that don't involve censorship," Wales said
Mukesh Ambani-Media Mogul?
The Dhirubhai Ambani scion now controls Network18, Eeenadu, BAG Films and ITV
Unobtrusively, the Indian media sweepstakes are changing hue. There is a new media magnate in town and his name is Mukesh Ambani. One of the learnings transposed from the battle with his younger brother Anil was that media had to be controlled. Younger brother Anil used the media to his advantage in the battle for the Ambani inheritance. Slowly and steadily Mukesh Ambani's gigantic footprint is now visible in the electronic news media. And the planning has been systematic and calibrated. A classical waterfall structure has been used to hide the identity of the real owner through a maze of companies, cross holdings and complex transactions. But a paper trail following the annual returns filed by various involved companies reveals the true identity of Mukesh Ambani. He has managed to systematically carve a wide swathe over the electronic news world. All the operations have been conducted in Ambani's trademark shadowy manner. With a silent signature using a maze of privately owned companies with bizarre names.
IN THE BAG
Let us look at one of the largest benami owned media empires in India and its architecture. By investing Rs 76 crore in Rajeev Shukla/ Anuradha Prasad owned BAG group companies, Mukesh Ambani has a major presence in TV news channels – News 24, E 24, Dhamal 24 etc. As always a web of disparate and obscure companies which own High Growth Distributors have invested Rs 76 crore to acquire 12 per cent in BAG Films & Media Ltd, 15 per cent in BAG Newsline Network Ltd and 15 per cent in BAG Glamour Ltd.. The clutch of private companies which owns High Growth Distributors are Reliance Commercial Holdings Pvt Ltd, Reliance Investment Enterprises Pvt Ltd, Reliance Explorations Pvt Ltd, Kudrat Investment & Leasing Pvt Ltd, Saumya Finance & leasing Co Pvt Ltd, Ornate Traders Pvt Ltd, Xanti Commercial Pvt Ltd, Tiara Comtrade Pvt Ltd, Hitech Dealers Pvt Ltd and Legal Outsourcing Pvt Ltd
The Fourth Annual Report (2007-08) of High Growth Distributors Pvt Ltd shows that it has made Long Term Investments in unquoted equity shares fully paid of Hitech Dealers Pvt Ltd, Legal Outsourcing Pvt Ltd, Sarvasiddhi Commercials Pvt Ltd, Xanti Commercial Pvt Ltd and Tiara Comtrade Pvt Ltd. That is not as important as its other investments in equity shares quoted fully paid up in BAG Film Ltd amounting to Rs 26.15 crore, BAG Glamour Pvt Ltd Rs 24.99 crore and BAG Newsline amounting to Rs 24.99 crore. All told High Growth's investments in BAG Group companies thus comes to Rs 76.15 crore.
The NSE shareholding filing of BAG Films and Media Ltd as of December 31, 2008 clearly states that High Growth Distributors Pvt Ltd owns 13078000 shares amounting to 11.59 per cent of the company. Similarly the Annual Return (Registration No 162904) filed by BAG Newsline Network Pvt Ltd clearly shows that High Growth Distributors Pvt Ltd owns 2571428 shares in the company. The Annual return of BAG Glamour Pvt Ltd (Registration No 160548) similarly shows that High Growth Distributors Pvt Ltd owns 2571428 shares in the company.
HIGH GROWTH
So, who owns High Growth Distributors Pvt Ltd with its Registered Office at 26, Chittranjan Avenue, Kolkata 700012? Legal Outsourcing Pvt Ltd Fourth Annual Report 2007-08 also states that its Registered Office is 26 Chittranjan Avenue, Kolkata 700012. This in turn has investments in Hitech Dealers Pvt Ltd, High Growth Distributors Pvt Ltd, Sarvasiddhi Commercials Pvt Ltd, Xanti Commercial Pvt Ltd and Tiara Comtrade Pvt Ltd. Hitech Dealers is also showing the same address for its Registered Office. And this company too has investments in several of the above mentioned companies. All these companies incidentally have a common auditor - chartered accountant firm in D Dokania and Co.
Xanti Commercial Pvt Ltd has its Registered Office in 84 A Mittal Court, 8th Floor, 224 , Nariman Point, Mumbai 400021 and their auditors are Joy Dalia & Co Xanti's long term investments are in a wide variety of companies including Reliance Consolidated Pvt Ltd, Reliance Enterprises Holding Pvt Ltd, Reliance Extrusions Pvt Ltd, Reliance Gas Pvt Ltd, Reliance Group Holding, Reliance Group Enterprises, Reliance Group Investments and Holding, Reliance Industries Holding, Reliance Industries Investments and Holding, Reliance Investment and Trading, Reliance Investment Holding, Relogistics Infrastructure, Relogistics based in Pune, Delhi, Rajasthan, Jamshedpur and many more. A usual suspect Tiara Comtrade also pops up in this list. Then the tell tale signs surface.
In the list of related parties with whom transactions have taken place in the past and relationships exist are familiar names – High Growth Distributors and Hitech Dealers. Tiara Comtrade has a similar history. Among its long term investments are listed Reliance Integrated Agrisolutions previously known as Urja Trading, all the Relogistics companies and myriad other names which leave little to imagination. The list of related parties with whom transactions have taken place and relationship exists include High Growth Distributors and Hitech Dealers. Tiara Comtrade's registered office is the same as Xanti Commercial's. One of the directors is common – Shailesh Solanki and the majority of the investments are common too. The annual returns of Xanti and Tiara show the funding received from the private companies of Mukesh Ambani through debentures.
INDIA TV
BAG Group of Companies is only one of several outfits controlled by Mukesh Ambani through a web of transactions. Take India TV of Independent News Services. Mukesh Ambani Group through Reliance Chemicals Pvt Ltd, a 100 per cent subsidiary of Reliance Industries (Rs 100 cr); Reliance Ventures Pvt Ltd, another RIL 100 per cent subsidiary (Rs 20.20 cr) and Limca Commercials Rs 24 cr(private company owned by Mukesh Ambani) has invested Rs 145 crore in Shyam Equities Pvt Ltd, All told he has acquired 70,25,765 shares of Rs 10 each for an astounding premium of 1323 per cent.
Tally Solutions jointly controlled by Mukesh Ambani group and Bharat Goenka has Anand Jain and Manoj Modi on its board. Both are well known confidants of Mukesh Ambani. Shyam Equities Pvt Ltd is a 100 per cent subsidiary of Tally. It is a shell company, Tally has actually invested Rs 1.80 lakh only in Shyam. Shyam Equities owns 23 per cent in Independent News Services Pvt Ltd which owns India TV. The Annual Return of Tally Solutions Pvt Ltd 2007-08 registration number 08-12483 clearly shows that Bharat Goenka, his wife Sheela Goenka, Anand Jaikumar Jain and Manoj Harjivandas Modi are directors. The Director's Report of Tally reveals that it had three subsidiaries including Shyam Equities Pvt Ltd in which it has invested a paltry Rs 179,990. However, the balance sheet audited by Deloitte Haskins & Sells for Shyam Equities Pvt Ltd shows that under the unsecured loans head – Digivision DTH Services, Limca Commercials, Reliance Chemical and Reliance Ventures have forwarded as much as Rs 1,642,028,000 establishing Mukesh Ambani group's clear cut complicity.
Reliance Industries Ltd's Annual report page 149 for FY 2007-08 lists Reliance Ventures Ltd as a subsidiary of RIL. Moreover, Reliance Chemicals is shown as a subsidiary under RIL's disclosure dated October 3, 2008 to the Bombay Stock Exchange. The annual return filed by Limca Commercials Pvt Ltd clearly shows that all the shareholders of Limca have their address at 84A Mittal Court, Nariman Point, Mumbai, the home for all the promoter and privately owned companies of RIL. Yes, this is the same address of Xanti Commercial and Tiara Comtrade which have invested in BAG Films through the waterfall structure route. Finally the Shyam Equities balance sheet seals the deal where under the investments head, it shows that it has made an investment in Independent News Services Pvt Ltd buying 70,25,765 shares of Rs 100 each at premium of Rs 42.33 per share fully paid up valued at cost.
NEWS X
The most recent foray into news media is actually a consolidation of his earlier investments. For long there has been talk that Mukesh Ambani was an investor in the beleaguered INX Media, but there was nothing to substantiate it. Earlier this year, Vinay Chajlani and Jehangir Pocha formed Indi Media to acquire INX News from INX Media. Media industry pegged the size of the deal to roughly Rs 50 crore. That was the official version. The real version is that Vinay Chajlani Group also owns Suvi Info Management and its 100 per cent subsidiary Nai Duniya News and Network Pvt Ltd. By virtue of this, Chajlani also owns Nai Duniya newspapers.
The Annual Returns of Suvi Info Management (Indore) Pvt Ltd (registration number 018339) shows Vinay Chajlani and Sunita Chajlani as shareholders and directors of the company. Importantly, the balance sheet of Suvi Info under schedule C investments shows 6734700 equity shares were owned in Nai Dunia News and Network Pvt Ltd at Rs 57.50 per share amounting to Rs 387245300 or Rs 38 crore.
Mukesh Ambani Group has funded Vinay Chajlani Group investing Rs 38 crore in Suvi Info through Aarthik Commercials Pvt Ltd. Aarthik Commercials is a private company owned by Mukesh Ambani, as always through a web of front companies namely Reliance Petromarketing Infrastructure, Jamnagar Kandla Pipeline Co, Agni Fuels, Avalanche Fuels, Jubilant Autofuels Trading, Steadfast Fuel Trading. All these private companies once again throw up the same name – Reliance Industries. Schedule B of Suvi Info's balance sheet 2006-07 shows an unsecured loan given by Aarthik Commercials amounting to Rs 38 crore. The Annual Returns filed by Aarthik Commercials, 307 Parekh Market, 3rd Floor, 39, Jagannath Shankar Seth Road, Opra House, Mumbai list all the names given above. Each of these entities Jubilant, Avalanche, Agni, Reliance Petromarketing, Steadfast Fuel and Jamnagar Kandla own 10,000 shares between them in the company. And the address for all these entities a dead giveaway – Ground Floor, Chitrakoot, Shreeram Mills Compound, Gantpatrao Kadam Marg, Worli, Mumbai 400013, a known RIL establisment.
In many ways, Mukesh Ambani has tried very hard to conceal his identity. While the RIL promoter has stuck to his theme of compartmentalizing one investment from the other, the paper trail leaves no doubt in anyone's mind. When one connects the dots, it is evident that Mukesh Ambani wants to control media by making strategic investments in the electronic media. The investments are extremely strategic – an English news channel News X, a Hindi news channel – India TV which caters to the lowest common sensibilities and another Hindi news and Bollywood channel – BAG Group. Finally there is the big investment in a slew of regional channels (see Box).
THE BIG ONE
The mother of all his investments in the media sector is the one in Eenadu newspaper and ETV Network which controls and owns ETV Telugu, Bangla, Bihar, Gujarati, Kannada, Madhya Pradesh, Marathi, Oriya, Rajasthan, Urdu, Uttar Pradesh, ETV 2 (Telugu news channel). This gives Mukesh Ambani complete control of the regional mind space. This investment unlike the others is extremely controversial. Overall, Mukesh Ambani using his oft repeated stratagem has invested Rs 1500 crore in Ushoday Enterprises by acquiring 26930 shares of Rs 100 each at a premium of 528,630 per cent.
When Blackstone Group invested $275 million in Ushoday Enterprises, a virtual tug of war broke out between Ramoji Rao owner of Eenadu and Ushoday on the one hand and late state chief minister Y Rajshekhara Reddy. The late Reddy winged in a spanner saying that Rao could not use the proceeds to pay embattled sister company Margadarsi Financiers. This ultimately resulted in Blackstone having to pull out, such was the ferocity of the opposition. This is when JM Financial promoter Nimesh Kampani arrived as a white knight and made the acquisition on behalf of Mukesh Ambani. Then Kampani himself got entrapped in a case and was reportedly hiding in Dubai.
So how did Kampani front for Reliance Industries? Well he constructed Equator and Altitude to hoodwink the law. But the long arm of the law caught up with him. Reliance Industrial Investment & Holdings (RIIHL) is a 100 percent subsidiary of Reliance Industries. RIIHL is the vehicle through which 10.47 crore (6.66 percent) treasury shares of RIL were held. The RIL Annual Report 2007-08 shows RIIHL as a 100 percent subsidiary. The shareholding pattern of RIL for December 2008 shows the shareholding of the Petroleum Trust. The Petroleum Trust through the Trustees for the sole beneficiary – Ms RIIHL owning 6.66 percent. Since then Mukesh Ambani has extinguished the treasury stock through a buy back which left analysts in a tizzy.
Now RIIHL held the treasury stock through the Petroleum Trust and Nimesh Kampani was the Trustee of the Petroleum Trust. The scheme of Merger of reliance Petroleum Ltd and reliance Industries Ltd of 2002 – page no 166 – shows the provisions of the Trust created for five years. On December 9, 2004, Business Standard reported that Petroleum Trust was not part of the promoter holding in RIL. BS wrote, "Following the amalgamation of Reliance Petroleum with RIL, the shares of RIL were allotted to the trust. RIIHL, being a 100 percent subsidiary of RIL could not hold the shares of the parent company under law. So, the Petroleum Trust was created to house the newly created shares of RIL after the merger. But since the property belonged to RIIHL, it was named the 'sole beneficiary'implying that all the financial benefits arising out of the ownership of RIL shares would flow to RIIHL."
When the merger was announced in April 2002, it was stated by then RIL MD Anil Ambani that 12.2 percent (7.5 percent then held by the Trust and 4.7 percent held by RIL associate companies) would be sold to strategic investors, financial institutions or overseas via ADRs or GDRs in five years. The two trustees of the Trust were Nimesh Kampani and Vishnubhai B Haribhakti. But the BSE continues to show the Trust holding as part of promoter holding.
RIIHL formerly known as Trishna Investments and Leasings in turn controls 100 percent equity of Shinano Retail Pvt Ltd. Shinano is held by way of two inter woven and inter linked companies both held under inter se and RIIHL. Once again the leads are provided by the Annual Returns of Shinano Retail (registration no 176418) which held its first AGM as recently as September 22, 2008. The Annexure to clause V of the Companies Act 1956 details that RIIHL (Maker Chambers IV, 222 Nariman Point) and Teesta Retail (Chitrakoot, Shreeram Mills Compound, Worli) held 5000 shares each in the entity as of 22.9.08. Further, these shares were transferred in the names of RIIHL and Teesta by Reliance Elastomers and Reliance Industrial Enterprises respectively on 28.1.08. The same held good for Teesta Retail as well where RIIHL and Shinano Retail held 5000 shares each and the modus operandi was the same as these shares were transferred by Reliance Elastomers and Reliance Industrial Enterprises.
Now comes the classic RIL twist in the tale. Obfuscation being the core value, Shinano has funded Kavindra Commercials with Rs 1054 crore and an additional Rs 952 crore was given to Devki Commercials through convertible loans. Once again, operating through a maze of transactions, both Kavindra and Devki are held inter se and also through inter woven companies namely Teesta and Shinano, accordingly fully held by RIL through its subsidiary. Form 18 of Kavindra and Annual Return dated 26.9.08 of Devki clearly show their addresses as 84A Mittal Court, Nariman Point which are addresses of other Reliance owned entities used to make investments in media companies. Interestingly, schedule I, point number 8 in Annual report of RIIHL (wholly owned subsidiary of RIL) shows Shinano and Teesta as Associate companies from January 28, 2008.
The trail gets stronger when one gets to the balance sheet of Shinano for 2007-08 where schedule D, point number 5 in the notes to accounts shows loan of Rs 1054 crore from Shinano. Similarly the balance sheet of Devki for 2007-08 schedule B, point number 5 in notes to accounts shows loan of Rs 952 crore. Shinano lent an aggregate amount of Rs 2006 crore. Of this Rs 1054 crore is given to Kavindra and Rs 952 crore to Devki. The Annual Returns of Kavindra and Devki show the inter woven shareholding along with Shinano and Teesta.
It is here that Nimesh Kampani is rewarded for his loyalty by Mukesh Ambani. Remember that Kampani was the valuer during the family settlement between the two brothers presided over by the mother. Kavindra then diverted Rs 1054 crore received from Shinano to Altitude Mercantile and Equator Trading through debentures. Now the case gets curiouser. Altitude and Equator are owned privately by Nimesh Kampani. The balance sheet of Kavindra for the year 2007-08, schedule C shows investment of Rs 99.99 crore in debentures of Altitude and investment of Rs 954 crore in debentures of Equator. Devki did likewise, a mirror image of the transaction where it diverted rs 952 crore received from Shinano to Altitude and Equator through debentures. The balance sheet of Devki 2007-08 schedule C shows investment of Rs 100.49 crore in debentures of Altitude and investment of Rs 850 crore in debentures of Equator.
Form 2 filed by Equator Trading Enterprises shows allotment of 1,999,900,000 shares to Altitude Mercantile with 141, Maker Chambers 111, Nariman Point on January 30, 2008, making it a subsidiary. Similarly Form 18 and 32 of Altitude and Equator shows a common address as are the directors on the boards of the company. The crucial link then is Form 2 dated 29.1.2008 filed with the Registrar of Companies by Altitude which shows Kampani Properties and Holdings Ltd (holding 40 percent of the equity) and JM Assets Management holding 15 percent of the equity.
Altitude has used Rs 200 crores received from Kavindra and Devki to acquire equity shares of Equator. Altitude is having a paid up share capital of only Rs 1 crore. Form 2 filed with RoC shows shares allotted to Altitude. If your head is spinning with these names, then the objective has been achieved, for this veritable maze has been deliberately created to confuse the trackers. Equator then used Rs 1424 crores received from Devki and Kavindra to acquire 26,930 equity shares of Rs 100 each at a premium of Rs 528,630 per share of Ushodaya. Once again the paper trail gives the evidence. Since government of India makes it mandatory to make these filings, all this is recorded for posterity.
Form 2 dated 30.1.2008 filed by Ushodaya with RoC shows shares allotted to Equator and premium of Rs 528,630 per share paid. Media reports surface dated 2.2.2008 and 13.2. 2008 on investment in Eenadu Group by private companies of Nimesh Kampani. Ushodaya is the holding company of media baron Ramoji Rao who is the owner of Eenadu Group. Prior to the deal with Kampani, he owned 99.86 percent of Ushodaya.
Now with chief minister YS Reddy having died in an untimely helicopter crash, the decks have been cleared for Kampani's return to India.
The moot point is that Mukesh Ambani's octopus like tentacles across the media vector have not been understood by the common man. By enveloping Eenadu, he got a major foothold in the powerful regional media which was important for his retail plans at that point in time. He has also been fighting a legal battle with his brother on KG Basin gas and print and television mouthpieces would only add to his clout to spread disinformation. The idea at all times being to control without coming to the fore. By using his enormous financial clout he has managed to grab several entities. The question is whether they are the right vehicles in this age of fragmented and diffused media.
Raghav Bahl-led of Network18 Group is acquiring a string of regional language news besides general entertainment TV channels under Eenadu Group owned by Reliance Industries Ltd(RIL) for upto Rs 2,100 crore($395 million), the company said on Tuesday.
After a tumultuous 2011, the natural question to ask is what augurs for 2012! With that objective in mind, I summarise below two interesting viewpoints – from Bill Gross who runs the world's largest bond manager Pimco and from Robert Prince who is the co-CIO of the world's largest (and incredibly successful) hedge fund Bridgewater (which was up 25% until end-November versus -3.7% for the average macro hedge fund). Both present thought provoking outlooks which are worth giving serious consideration to:
Bill Gross:
-We are entering 2012 in a "paranormal" environment created by "zero-bound" interest rates which have created two possible "fat tailed" outcomes – either a central bank driven inflationary expansion or an "implosion" driven by delevering.
-A zero-bound interest rate environment , where rates are held at or close to zero for a significant time, creates no incentives to expand credit as flat yield curves provide limited opportunities for earning "carry" or capital gains.
- In addition, money market fund business models break-down as operating expenses exceed income leading to shifting of deposits to banks who then deposit them with the Fed in the form of reserves.
-The Fed, in its late January meeting, is likely to announce that it will keep rates at 25 basis points for 3 years or more until inflation or unemployment reach specific targets. This is QE by another name, and if it doesn't work , then a more formal QE3 is likely by mid-year. This mirrors the ECB 3 year refinancing operation, to be used by banks to fund sovereign bonds, which is a thinly disguised form of QE as well.
-In this environment it would make sense for investors to hedge their bets until the outcome becomes more clear:
-Maximise duration/average maturities as negative yields will continue with central banks holding rates at zero for a while.
-Hold US sovereign bonds in the 5-9 sector, which protect against inflation and benefit from the "roll-down" effect. Avoid European government bonds.
-Keep long term TIPS bonds to protect against inflation.
-AA and A rated credits and senior (rather than subordinated) bank paper.
-High yield stocks in sectors with relatively stable cash-flows - electric utilities, big pharma and multinationals.
-Commodities are tilted to the upside given the scarcity and geopolitical risks. Gold likely to go higher if QEs continue.
-The dollar could go either way – go up in a delevering scenario or debase in a reflationary scenario.
-Lower expectations to 2-5% long-term returns for stocks, bonds and commodities.
Robert Prince:
-The US and European economies are like "zombies" and are likely to remain like that (slow growth and high unemployment) until they reduce their debt burdens. Interest rates in the US and Europe will be locked at zero for a long time.
-Stocks will be vulnerable to "air pockets" from shocks – particularly from Europe. However, investors looking at the decade ahead could find equities to be attractive.
-Treasuries still have upside, despite low rates, and gold and Asian currencies are likely to do well as central banks continue to print money.
-The US economy is unlikely to sustain its recent better-than-expected performance as its driven by a decline in the savings rate, without material gains in personal income and employment. In addition, long-term credit growth remains weak.
-The leveraging-up period went on for 60 years- from the early 1950s to 2008 and was self-reinforcing on the way up – and with the bursting of the debt bubble the process is now self-reinforcing on the way down.
-The delevering process has hardly started with household debt to net worth being still higher than it was before 2008. Against this backdrop, the Fed will continue to buy government bonds (albeit on a sporadic basis).
Thought provoking views, highlighting the importance of keeping the macro delevering picture in mind when making investment decisions. I think this further reinforces the importance of diversity and constructing a portfolio which has something "for all seasons". A portfolio we have discussed for a while - comprising US and global energy, US and global high quality multinationals, high grade corporate and US mortgage and treasury bonds, EM (China, India and select others) stocks, select EM (saving surplus countries) currencies and bonds, gold and cash should be able to withstand the shocks while providing reasonable (5-7%) returns over a 3-5 year period. The case for having substantial exposure to emerging markets becomes even stronger with the above views (despite the underperformance in 2011) given their significantly superior debt, demographic and growth profiles when compared to the developed world. US treasury and mortgage bonds and cash will provide insurance against the frequent "air pockets" ahead of us, with corporate bonds and stock yields providing the income flows.
Regarding the global economic outlook for the year, it is clear (as Gavyn Davies points out in the FT) that the leading indicators (see graph below) point towards an improving global economy since the low point reached in the summer of 2011. It is also remarkable to note that stock markets followed the path of the leading economic indicators (which lead the economy itself) quite closely! We can therefore expect a reasonable start to 2012 with a possible slowing down again by the summer (for the reasons outlined in the two views above). The key risk remains contagion via stresses in the eurozone banking system (as pointed out by Gavyn Davies) as illustrated by Bloomberg's financial conditions indicator (see second graph below) which shows a marked deterioration in Europe (to about half the 2008 levels) – which could have been worse if it were not for the ECB's unprecedented quantitative easing via their 3 year refinancing programme. In contrast, please note the Fed's success in keeping financial conditions easy in the US.
All The World's Gold
