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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.

 

 

 

 

 
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.

 

 

 
GDP growth to slow; downgrades likely We expect FY13 GDP to slow to 6.8% and consensus to cut GDP forecasts over the next few months. GDP growth in the next few quarters is likely to come even lower at around 6.5%. A slower GDP will be led by: (a) a slowing global economy, (b) impact of high rates and (c) slowing investment spend.

 
China said Wednesday it opposed "unilateral" sanctions against Iran, after US President Barack Obama signed into law new measures targeting the Islamic republic's central bank.
Washington's move came after the United States, Britain and Canada said in November they were slapping additional sanctions on Iran, citing evidence that Tehran is pursuing nuclear weapons.

Tehran denies the allegations, saying its nuclear programme is exclusively for medical and power generation purposes, and China has repeatedly said sanctions will not resolve the issue.

"China opposes placing one's domestic law above international law and imposing unilateral sanctions against other countries," said foreign ministry spokesman Hong Lei in response to a question about US sanctions on Iran.

China and Iran have become major economic partners in recent years, partly due to the withdrawal of Western companies in line with sanctions against Tehran.

China and Russia — key allies of Iran — have often sought to take a softer stance on the Islamic republic than their fellow members of the UN Security Council.