Today's worst kept secret just hit the wires, as S&P announces that it has officially downgraded France
FRANCE CUT TO AA+ FROM AAA BY S&P, OUTLOOK NEGATIVE
"we believe that there is at least a one-in-three chance that we could lower the rating further in 2012 or 2013″
"we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating,"
One notch, but the negative outlook means a future downgrade is likely.
Full statement below:
France's Unsolicited Long-Term Ratings Lowered To 'AA+'; Outlook Negative
Overview
Standard & Poor's is lowering its unsolicited long-term sovereign credit rating on the Republic of France to 'AA+'. At the same time, we are affirming our unsolicited short-term sovereign credit rating on France at 'A-1+'.
The downgrade reflects our opinion of the impact of deepening political, financial, and monetary problems within the eurozone, with which France is closely integrated.
The outlook on the long-term rating is negative.
Rating Action
On Jan. 13, 2012, Standard & Poor's Ratings Services lowered the unsolicited long-term sovereign credit rating on the Republic of France to 'AA+' from 'AAA'. At the same time, we affirmed the unsolicited short-term sovereign credit rating at 'A-1+'. We also removed the ratings from CreditWatch with negative implications, where they were placed on Dec. 5, 2011. The outlook on the long-term rating is negative.
Our transfer and convertibility (T&C) assessment for France, as for all European Economic and Monetary Union (eurozone) members, is 'AAA', reflecting Standard & Poor's view that the likelihood of the European Central Bank restricting nonsovereign access to foreign currency needed for debt service is extremely low. This reflects the full and open access to foreign currency that holders of euro currently enjoy and which we expect to remain the case in the foreseeable future.
Rationale
The downgrade reflects our opinion of the impact of deepening political, financial, and monetary problems within the eurozone.
The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures.
We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the eurozone's core and the so-called "periphery." As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues.
Accordingly, in line with our published sovereign criteria, we have adjusted downward the political score we assign to France (see "Sovereign Government Rating Methodology And Assumptions," published on June 30, 2011). This is a reflection of our view that the effectiveness, stability, and predictability of European policymaking and political institutions (with which France is closely integrated) have not been as strong as we believe are called for by the severity of what we see as a broadening and deepening financial crisis in the eurozone.
France's ratings continue to reflect our view of its wealthy, diversified, and resilient economy and its highly skilled and productive labor force. Partially offsetting these strengths, in our view, are France's relatively high general government debt, as well as its labor market rigidities. We note the government is addressing these issues through, respectively, its budgetary consolidation strategy and structural reforms.
Outlook
The outlook on the long-term rating on France is negative, indicating that we believe that there is at least a one-in-three chance that we could lower the rating further in 2012 or 2013 if:
Its public finances deviated from the planned budgetary consolidation path. Budgetary measures announced by the French government to date may be insufficient to meet deficit targets in 2012 and 2013, should France's underlying economic growth in these years fall below the government's current forecast of 1% and 2%, respectively. If France's general government deficit were to remain close to current levels, leading to a gradual increase in the net general government debt to surpass 100% of GDP (from just above 80% currently), or if economic growth were to remain weak for an extended period, it could lead to a one-notch downgrade.
Heightened financing and economic risks in the eurozone were to lead to a significant increase in contingent liabilities, or to a material worsening of external financing conditions.
Conversely, the ratings could stabilize at current levels if the authorities are successful in further reducing the general government deficit in order to stabilize the public debt ratio in the next two to three years and in implementing reforms to support economic growth.
MS on Oil & Gas
We downgrade our Industry View to Cautious due to
1) negative outlook for Refining and Petrochemical margins, and
2) higher subsidy burden due to a weaker rupee.
-- Our top pick is Cairn India for its production growth and free cash flow
-- Avoid OMCs, Reliance and Essar due to their refining exposure
MS cuts RIL's rating to 'underweight' from 'equalweight'; Cuts price target to Rs 650 from Rs 921
MS downgrades HPCL to 'underweight' from 'equalweight'; Cuts price target to Rs 205 from Rs 407
MS downgrades Essar to 'underweight' from 'equalweight'; Cuts price target to Rs 50 from Rs 97
MS downgrades BPCL to 'underweight' from 'equalweight'; Cuts price target to Rs 418 from Rs 683
MS cuts OIL price target to Rs 1,286 from Rs 1,600; Keeps 'overweight' rating
MS raises Cairn India's price target to Rs 413 from Rs 359; Keeps 'overweight' rating
MS_Oil & Gas_Jan 13.pdf
Even before the euro crisis, people were worried about Europe's pension bomb.
State-funded pension obligations in 19 of the European Union nations were about five times higher than their combined gross debt, according to a study commissioned by the European Central Bank. The countries in the report compiled by the Research Center for Generational Contracts at Freiburg University in 2009 had almost 30 trillion euros ($39.3 trillion) of projected obligations to their existing populations.
Germany accounted for 7.6 trillion euros and France 6.7 trillion euros of the liabilities, authors Christoph Mueller, Bernd Raffelhueschen and Olaf Weddige said in the report.
"This is a totally unsustainable situation that quite clearly has to be reversed," Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington, said in a telephone interview.
A recession threatening the world's second-biggest economic bloc, along with efforts to reduce debt across Europe, is exacerbating the financial risks. Stable or falling birthrates, plus rising life expectancies, are adding to pressures, with the proportion of economic output devoted to spending on retirement benefits projected to rise by a quarter to 14 percent by 2060, according to the ECB report.
Ageing Populations
Increased retirement ages and lower benefits must be part of any package to hold the 17-nation euro area together, according to analysts, including Fergal McGuinness, the Zurich- based head of Marsh & McLennan Cos.'s Mercer's pensions consulting unit for central and eastern Europe.
Europe has the highest proportion of people aged over 60 of any region in the world, and that is forecast to rise to almost 35 percent by 2050 from 22 percent in 2009, according to a report from the United Nations. That compares with a global estimate of 22 percent by 2050, up from 11 percent in 2009.
The number of people aged over 65 in the 34 countries in the Organization for Economic Cooperation and Development is forecast to more than quadruple to 350 million in 2050 from 85 million in 1970.Life expectancy in Europe is increasing at the rate of five hours a day, according to Charles Cowling, managing director of JLT Pension Capital Strategies Ltd. inLondon.
In so-called developed countries, the average lifespan will reach almost 83 by 2050, up from about 75 in 2009, the UN said.
Cutting Costs
Governments and companies have taken steps to reduce future costs with policy makers having increased retirement ages in countries, including France, Germany, Greece, Italy and the U.K.
"Irrespective of whether you're inside or outside the euro or anything else, raising retirement ages is one of the structural reforms that all of Europe has to do," Kirkegaard said. "The crisis has forced them to address this. This is actually a positive thing in many ways."
By 2060, the average French pension benefit will be 48 percent of the national average wage, compared with 63 percent now, said Stefan Moog, a researcher at Freiburg University in Freiburg, Germany.
Pension managers and governments are relying on economic growth to safeguard the promises they make. If the euro zone grows too slowly to bolster public and private coffers, theretirement plans may become unaffordable, according to Mercer's McGuinness.
Benefits' Squeeze
"The amount of money countries are going to spend on social security and long-term care is going to go up," McGuinness said in an interview. "Governments with more generous social-security systems will have difficulty affording them. They will have to recognize these costs will impact their ability to reduce borrowings."
State pension obligations in France and Germany are three times the size of their economies, according to data compiled by Mercer. It's more sustainable in France than Germany because of France's higher birthrate.
Last year, there were 4.2 people of working age for every pensioner in France. The ratio will fall to 1.9 by 2050, according to a report by Economist magazine in March. In Germany, the proportion will decline to 1.6 from 4.1 in the same period.
"That is going to put a lot of pressure on Germany's ability to meet their promises," McGuinness said. "What they are more likely to do is cut back benefits. Governments face a lot of longevity risks."
Add to Risks
Private pension funds are under pressure too with benchmark euro-area interest rates at the lowest level since the 13-year- old currency was introduced. Low rates mean pension plans have to hold more assets to back their long-term payout projections.
Unless growth returns, fund managers will effectively be forced to take on more risk, said Phil Suttle, chief economist of the Washington-based Institute of International Finance.
"That creates problems because they all head into sectors that seem a great idea now, and then they blow up, whether it's commodities or equities or whatever," Suttle said. "You're going to intensify the boom-bust cycle."
The growing doubts facing the euro area is another planning hurdle as companies reconsider investment strategies amid concerns that Greece may default on its debt and spark a broader euro breakup.
The implied probability of one country leaving the euro by the end of 2013 fell to 49 percent on Jan. 10 from 51 percent a week earlier, based on wagers at InTrade.com, an Internet betting market. The probability of one country departing by the end of 2014 is 59 percent.
Rates Benefit
Pension plans in countries such as Greece or Portugal may benefit from exiting the euro as higher interest rates that would likely accompany a return to their national currencies would cut the cost of liabilities, while assets invested abroad would almost certainly gain in value, according to Mercer, a unit of Marsh & McLennan Cos.
PensionDanmark, Denmark's seventh-largest pension fund by assets, sold all its Germangovernment bonds last year, Chief Executive Officer Torben Mogen Pedersen told reporters in Copenhagen yesterday.
"Our government debt investments are all in Scandinavian non-euro countries," Pedersen said. "We think 2012 will be a very hard year for European investors."
In Britain, which has refused to join the euro, occupational pension funds have moved the risk of ensuring adequate retirement income to the employee from the employer in the past decade to curb pension-fund shortfalls.
Funding Gap
Unfunded public-sector U.K. pension obligations across 1,500 public bodies totaled 1 trillion pounds ($1.57 trillion) in March 2010, the Treasury said Nov. 29 in the first set of audited Whole of Government Accounts. That compares with a total of 808 billion pounds of outstanding U.K. government bonds and accounts for 90 percent of all public-sector pension liabilities.
Royal Dutch Shell Plc (RDSA), Europe's largest oil company, was the last member of the benchmark FTSE 100 Index to close its defined-benefit pension plan to new entrants when it made the decision last month to do so. The company plans to introduce a fund for new employees next year that makes them responsible for ensuring they have enough to live on in old age.
Governments may have to follow the same path for their own employees as well as increasing the retirement age to at least 70 and possibly 75 to make the pensions affordable, Cowling wrote in an article published in July by Public Service Europe.
As both anecdotal, local and hard evidence of China's slowing (and potential hard landing) arrive day after day, it is clear that China's two main pillars of strength (drivers of growth), construction and exports, are weakening. As Societe Generale's Cross Asset Research group points out, China is entering the danger zone and warns that given China's local government debt burden and large ongoing deficits, a large-scale stimulus plan similar to 2008 is very unlikely, especially given a belief that Beijing has lost some control of monetary policy to the shadow banking system. In a comprehensive presentation, the French bank identifies four critical themes which provide significant stress (and opportunity): China's economic rebalancing efforts, a rapidly aging population and healthcare costs, wage inflation and concomitant automation, and pollution and energy efficiency. Their trade preferences bias to the benefits and costs of these themes being short infrastructure/mining names and long automation/energy efficiency names.
They detail their concerns about the Chinese economic outlook (weakening exports, housing bubble about to burst, local government's debt burden, and large shadow banking system), and show that China has no choice but to transition to a more consumption-driven economy leading to waning growth for infrastructure-related capital goods and greater demand for consumer-related manufacturing. Overall they see a hard-landing becoming more likely.
Weakness Has Emerged In The Property Market
And The Chinese Financing System And Construction Industry Links Have Become Increasingly Complex
Conclusion – The situation in China is worrying to say the least. Short-term indicators are weakening as past monetary tightening starts to bite and the export model is threatened once again by the risk of recession in Europe and the US. Data from the real estate industry show a significant deterioration, with a clear break in the confidence that real estate prices always go up. The debt burden of local governments and large ongoing deficits should prevent a large stimulus plan similar to that of 2008. Monetary easing could bring some relief, although we believe that Beijing lost some control of the financing system through the shadow banking.
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.
