Spoiling The Share

ON December 1 a record of sorts was created when 1.78 crore Reliance shares were traded, accounting for trading to the tune of Rs 400 crore. Logic demandsthat when the volume of trading increases, the price of the share should decrease. But surprisingly the price only soared, begging the questions, who was buying and why?

When India's third largest corporate house, Reliance Industries Limited (RIL), with the world's second largest investor base, threatened to delist the scrips of four group companies from the Bombay Stock Exchange (BSE), reactions were extreme. Business dailies filled columns with the imbroglio, investors felt cheated, bankers and fund managers gloated and brokers felt the bottom falling out of their swivel chairs.

Indeed, the issue of delisting the Reliance scrips from the BSE is not purely an ego clash. It's also a question of big money. On November 30, a day after RIL received formal listing on the National Stock Exchange (NSE), total volumes on NSE broke all previous highs to exceed Rs 400 crore. The Reliance counter had a total volume exceeding 15 million shares (previous high: 11 million), ofwhich one-third was traded last year. The scrip jumped from Rs 206 to Rs 227 in a day. In contrast, only two million Reliance shares were traded at the BSE.

Twenty lakh shares traded means brokerage and jobbers' fees totalling Rs 90 lakh. Delisting all four Reliance scrips from the BSE means a loss of at least a crore a day for the BSE brokers and jobbers—a minimum of Rs 300 crore that would have been shared by the BSE brokers over a year would be diverted to the NSE and regional exchanges where brokerage spreads are much thinner.

Says a financial services company director: "The defiance of such cash considerations by the BSE board only on an ego tussle can mean that either there are more sinister forces at play or that the board members have just gone plumb loco."

 No one is willing to go on record, but it seems a simple case of things being blown out of proportion. While RIL has accused the BSE of acting with bias, the BSE itself has started acting holier-than-thou. It is not just blaming RIL for manipulating share certifi-cates, it's also penalising the company.

Reliance would normally have ignored the allegations, but in a liberalised environment when it has raised money from abroad thrice, it must not only be above board in allits dealings, but also appear to be so. Acting diffident and reacting like a cornered victim, Reliance has named two BSE board members as responsible for spearheading a vilification campaign and is almost trying to prove its innocence with a vengeance. The fact that 40,000 duplicate share certificates issued by Reliance, amounting to a mere 0.01 per cent of RIL's equity capital, was blown out of proportion to an extent that the scrip had to be suspended for three days did give Reliance a reason to crib.

In a parallel controversy, the scam-tainted Fairgrowth Financial Services Ltd, which made UTI a party to its petition in the special court of S.N. Variava, asked RIL to explain the whereabouts of 15 lakh shares that were given to Reliance for transfer in early 1992.

The duplicate shares are a simple case of bureaucratic bungling and were issued against a lost certificate claim. "When you lose your driving licence, don't you get a duplicate? Vested interests have started the vilifi-cation campaign," says an RIL spokesman.

Meanwhile, a group of shareholders with two sets of RIL shares—one in a jumbo lot and the other in marketable lots—sold 15 lakh shares to UTI in 1992 which lodged them for transfer from RIL. In November 1995, the BSE notified that 8.70 lakh shares of this lot were bad delivery.

While UTI mentioned that some of the Reliance shares it received for transfer were different from the ones it lodged with the company's registrars, RIL clarified that "certain investors had delivered a particular lot of shares in December 1991 for transfer and registration in favour of UTI. However, in March-April 1992, the investors deliv-ered a different lot of jumbo shares for transfer in favour of UTI and took back the shares originally delivered."

Commenting on the replacement of 8.70 lakh shares, the Reliance spokesman said neither RIL nor Reliance Consultancy Services had delivered these shares. "The investors who delivered shares for transfer in favour of UTI seem to have provided the replacement from their own holdings of old RIL shares," a release added.

Observers agree on a few questions. The main problem is that Fairgrowth claims there are two sets of identical shares bearing distinctive numbers, some of which are now with UTI. Who are the original sellers of the 15 lakh shares? Did RIL's registrar issue the duplicate shares deliberately? Why did Fair-growth want to know the antecedents of the 15 lakh shares when they were already paid for? Is Reliance trying to pre-empt future action by threatening to delist from BSE?

There seems to be a sustained bear run of the RIL scrip. And the entire episode has put Reliance on the defensive. Says Sameer Arora of Alliance Capital India: "At a time when liquidity is missing from Indian markets, such behaviour from the first potential Indian multinational will definitely leave an undesirable impression on the FIIs."

Whatever the outcome, no one really wants Reliance scrips delisted. "It has a weightage of almost 15 per cent on the BSE sensex. If delisted, the glamour of the BSE is going to vanish," says George Thomas, director, Fiduciary Financial Services. But most agree that the big brokers on the BSE are also registered with the NSE. It is not as if they will lose business, but their fat margins are definitely going to thin out.