Friday, February 11, 2011

Shame again for Anil Ambani

I had commented on Anil Ambani in one of my earlier posts. He's been an iconic personality for me for several years and I think somewhere deep inside me, I still carry this feeling for him. It’s out of anguish that I had written the first piece "Time for Anil Ambani to pause and think” (Jan 14th). It’s out of anguish again that I write this piece as well.

Anyone remotely connected with the stock markets knows what I am talking about. ADAG group stocks plummeted earlier this week by as much as 10-15% on a single day. This is extremely un-usual and reflects the very strong current of investor dis-enchantment with this towering industry leader. Because of the very personalized nature of the identity of the ADAG group, this pounding of the stock reflects personal distrust of Anil Ambani. It’s a commentary on what investors think of corporate governance in the ADAG group, its business practices, it’s penchant for taking short cuts and playing around with the political system, and its complete incompetence in keeping all of this out of public glare.

It all started off with a 2nd complaint filed by the audit firm “Parakh & Co” that the Reliance group was threatening them and not allowing them to do their work. Parakh & Co had been tasked by the DOT in 2009 to look into the books of accounts of all the telecom companies in the ADAG group. A six member DOT team had framed the terms of reference for the probe. Based on their findings, it appears that there has been under-payment of license fees due to the government. RCom filed complaints against the auditors at the Institute of Chartered Accountants of India (ICAI), Registrar of Companies (RoC) and even the anti-extortion cell of the crime branch of Mumbai Police – alleging I guess (given the complaint at the anti-extortion cell) that the auditors were extorting money on the back of what they found. This means that they found something. The auditors saw this as harassment and have now complained a second time to the DOT in less than 6 months.

The point is not whether RCom is right or the auditors. The point is that this has been so badly mishandled. How can such accusations be made against such a big group? How can RCom not handle the PR around the issue better? After all, they are very good in handling the government. There is this concept about allegations…..they stick to some and they don’t stick to others. These charges appear to be sticking to RCoM. People at large and Investors in particular seem to be believing that these charges are right.

As a result, the stock price of RCoM has plummeted below Rs 100. Its market capitalization is down to Rs 20K crores (Airtel 1.2 lac crores; Idea 21K crores. Voda and Tata Docomo are unlisted and surely their market caps are way higher than RCoM’s). Investors have lost crores of rupees in the process.

It’s the same story in all the other group companies of ADAG as investors believe that similar accounts fudging must be happening in all cos. Overall, the entire ADAG group has suffered terribly financially and more importantly, in terms of its reputation.

The real truth is that Anil Ambani is handling the situation very poorly. He should handle it much better. There is no point in taking the auditors to court or filing criminal charges against them. He must cut his losses. He must make a statement assuring his investors that he will personally look into the charges and make sure they are not repeated. Maybe he should sack a few senior people (this is the sad part of a professional’s life….he is often sacrificed for unfair reasons!). He must promise investors a better style of corporate governance. And adopt a style based on tapping market opportunities rather than taking the short cut to profitability. Investors will surely give him a second chance. If only he has the humility to ask for it

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