House Of Horrors

THE bigger the gun, the harder the recoil. In the case of Reliance, there seems to be no end to the din as oneskeleton after another fall out of the closet of India's second-largest corporate house. Despite training vicious firepower at all challengers—from threatening to delist from the Bombay Stock Exchange (BSE) to slapping a Rs 2,000-crore suit against a business daily—the Rs 7,166-crore textiles and petrochemicals giant remains on the defensive.

The disclosures have been coming fast and furious. The duplicate share issue, which appears to involve several investment companies owned by the Ambanis, is getting larger and murkier, now that it is coupled with revelations about switched shares. And suddenly, Reliance is also introuble in a totally unrelated area, with allegations about it being involved in the raging telecom controversy. On December 14, 27 opposition MPs demanded criminal action against Reliance in the duplicate shares controversy. On the same day, there were charges of insider trading being levelled about transactions in shares of Reliance Polypropylene and Reliance Polyethylene just before these two companies were merged with Reliance Industries late last year.

This time, the damage to Reliance could be immeasurably deep. Certainly not in terms of performance: the group is on a strong enough wicket to post encouraging results. But the fact that this canniest of all business houses has been reduced to a totally reactive status as injurious disclosures appear every day in the media must be disquieting to investors, already suffering from an acute loss of faith in investment prospects. On December 8, Reliance reacted to newspaper reports by admitting that its registrars—group company Reliance Consul-tancy Services (RCS)—had switched 16.9 lakh shares lodged for transfer by UTI. Two days later, after another media disclosure, the group admitted that the actual number of switched shares was 30 lakh higher.

Reliance had put earlier rumours firmly behind it in the '90s, and had been going about making money in earnest. In 1992, it became the first Indian company to issueequity in the form of global depository receipts (GDRs; $150 million) to international investors. Another recent GDR issue raised $300 million, the highest-ever amount raised by an Indian corporate. It also made the largest convertible bond issue of $140 million in the European market. In 1995, Reliance Industries' net profit crossed the Rs 1,000-crore mark, unparalleled in the history of the Indian private sector. With an almost 15 per cent weigh-tage in the BSE sensex, Reliance has been a cult scrip with the reputation of being able to move markets at will. Its recent problems have the potential to hurt deep and long.

This at a time when the market is parchedof liquidity, the rupee has just received a beating against the dollar, and the country faces the prospect of a coalition government that may at best be weak and at worst, totally unstable. Under these circumstances, the question marks that seem to punctuate the doings of the world's only truly Indian transnational will have a ripple effect across markets and industries.

As for Reliance, its strength has been the equity cult built around its expansion andmodernisation plans. So far, it has paid dividends. But will the new global investor base of the group take its apparently murky ethics in its stride? Especially since, considering Reliance's plans for the telecom sector, the group may again have to tap the markets. But then, long memory and moral rectitude are hardly known to form a menage a trois with business.