What is common between Ramalinga Raju and Anil Ambani? : Ill intention

• Satyam’s minority investors are saved but no one came forward for Reliance Power shareholders

• Are government and regulatory authorities willing to introspect their role in Reliance Power case in the wake of Satyam episode?

• Can we have adequate rules and regulations to safeguard interest of minority shareholders in a company?

At last we can see a ray of light at the end of the tunnel for minority investors as the government, regulators and analysts are seem working in the interest of the minority shareholders of Satyam Computers Ltd. The institutional investors raised their concern against the Satyam promoter’s ill intentions which led tem to call off the deal.

Satyam yesterday said it planned to enter the construction industry by buying all of privately held Maytas Properties shares for USD 1.3 bln and 51 percent of builder Maytas Infra for USD 300 mln.

Satyam founder and Chairman B. Ramalinga Raju and other insiders hold 36 percent in Maytas Infra and 35 percent in Maytas Properties. The two are builders that work on infrastructure projects including highways, ports and water treatment systems. Satyam helps develop software for other businesses.

As Satyam announced the move after market hours here in India, the investors in US dumped the ADRs of the company which fell by whooping 59%.

Institutional investors believe that the deal is against the interest of the minority shareholders. They are of the view that the huge investment in Mytas Properties and Mytas Infrastructure could exhaust it’s nearly USD 1.2 bln cash reserves and bury it under the huge debt burden.

The government and regulators have taken the serious stance on the issue and initiated investigation. The department of Company Law Board is examining the case for the role of the board of directors in the decision making and following corporate governance guidelines.

It’s good to see that government and regulators are acting swiftly. However, a year back in the similar situation when the minority investors of Reliance Infrastructure were robbed by the Anil Ambani the same government and regulators have royally ignored the complaints of several investors. Projects worth thousands of crores of Reliance Infrastructure were transferred to the Reliance Power where Anil Ambani holds higher stake of 51%.

Further Anil Amabni’s holding company AAA Projects had acquired 105 crore shares of Reliance Power Ltd at Rs. 10 and the same shares were issued to investors through public issue at Rs. 430 to retail investors and Rs. 450 to institutional investors. The current share price of Reliance power is Rs. 115.95 and the investors have lost substantial investment. Even if one considers the bonus issue of the company the cost of a share comes to about Rs. 269.

Transferring of projects of Reliance Infrastructure to Reliance Power was against the interest of the minority shareholders of the former company, however, the government, institutional representative on the board of the company or any regulatory agency failed to take action against the ill moves of the company promoters. The move was clearly not in the spirit of good corporate governance. If government would have acted in time huge losses to the lakhs of investors would have been averted.

Reliance Power entered the primary market last year with the largest IPO in terms of money being raised, at Rs 11,700 crore, drew a phenomenal response from both institutional and retail investors by taking the subscription count to 73 times the 22.8 crore shares on offer. However, due to weak fundamentals of the company and highly overvalued issue the shares failed to cheer investors after the listing. The share price fell sharply after listing and most of the investors were found them selves trapped, resulting in huge losses to them.

The irregularities in the issue were brought to the notice of SEBI, RBI, the Company Law Board, Ministry of Finance and Prime Minister’s Office. Despite pile of complaints by several agile investors and analysts the government, SEBI, LIC (representative on the board of the company), the stock exchanges and the Company Law Board were silent on the subject. If these agencies would have taken timely steps against the promoters of Reliance Power and its promoters the losses to the investors would have averted.

The track record of the ADAG group is suspicious as other group companies such as Reliance Natural Resources Ltd and Reliance Infrastructure Ltd is likely to be nailed for serious violation of foreign exchange rules and regulations.

Indian government and regulatory authority should wake up and make necessary changes in laws governing the management of the company so that the interest of the minority shareholders is safeguarded and promoters such as Anil Ambani and Ramalinga Raju should be penalized for indirectly siphoning of money of the company to personal ventures