Tuesday 6 September 2016

Is Mukesh Ambani actually Tyrion Lannister?

On the day Mukesh Ambani launched Reliance Jio, the billionaire's second foray into the world of telecom, Business Standard reported that Jio's chief competitors to be  -- Idea and Airtel -- lost a sizeable share of market capital in a single day. While Idea lost 2,450 crores of market cap, Airtel was wiped out by 9,800 crores. Not so incredible, if you think about it.
Let me know if this advertisement doesn't make you facepalm.

IIN jokes became very popular at some point
Seriously, when these brands subject us to torture with such adverts, one does not even feel bad when they lose money in the market. Well deserved, may be.

I suppose Mr. Ambani (the elder guy) was pissed at these telecom giants for their stupidity -- who wouldn't be? Anyway, the day after Jio was launched officially, it was not all celebrations for the Ambani family. One day earlier, the company had received a potentially damaging blow from Mr AP Shah, former chief justice of the Delhi High Court.

Scroll.in reported: 'The one-member panel of former Delhi High Court chief justice AP Shah on August 31 held RIL and its foreign partners BP Plc and Niko Resources guilty of taking out natural gas that belonged to ONGC in an offshore block in the Bay of Bengal. Further, Mr. Shah promulgated that the Mukesh Ambani-led company should compensate the government for illicitly using 8.9 billion cubic metres of gas that flowed into its own field.'

Now, nitpicking in Wikipedia is one of my favourite pastimes, and I have been studying the English Tort law in some depth (for the fun of it, of course) since the past one month, and I was excited by the prospect of a real-life case that has happened right in front of our eyes. Ýou can read more about this case here in this scroll.in article. (If you are a law buff, and enjoy tort law cases, then this one will be a good read.)
And that is how Reliance's shares tanked.
Now that is a big blow to Reliance. Truly.

A day after Mr. Shah released his report, Mukesh Ambani launched Reliance Jio, with his target clear to one and all -- become the data king of India. A day after the launch, I came across the following research article in wired.in that described in detail what exactly Mr. Mukesh Ambani had done.

I will highlight the excerpts from the article by Paronjay Guha Thakurta and Aditi Roy Ghatak in a point by point format, so you can understand it efficiently. (Text that follows in bullet points sourced from the aforementioned article, with light editing.)
  • The May-June auctions of 4G spectrum in 2010 was controversial: More than five years after the auctions took place, the losers — including Sunil Mittal’s Bharti Airtel, Kumar Mangalam Birla’s Idea Cellular and the UK-based multinational Vodafone — are all still smarting at the outcome. They had lost to a company that was a little-known firm called Infotel Broadband Services Private Limited (IBSPL), promoted by Anant Nahata, son of Mahendra Nahata (of Himachal Futuristic Communications Limited fame).
  • How did this microscopic company find the humungous amount of finance to become a major player in this intensely competitive industry? After all, companies headed by Anil Ambani’s Reliance Communications, Vodafone, and Tata Communications had to exit the 4G auction process because of the very high stakes involved.
  • At the time it entered the auction, IBSPL had a paid-up capital of Rs 2.51 crore, a net worth of Rs 2.49 crore, and just one single leased line client from which it earned Rs 14.78 lakh. It also had no more than Rs 18 lakh in the bank and was ranked 150th in the list of internet service providers (ISPs) compiled by the Telecom Regulatory Authority of India (TRAI).
  • IBSPL’s promoting company Infotel Digicom Private Limited (IDPL) had an equity capital of Rs 6 lakh and a net worth of Rs 8.55 lakh on 31 March 2009. IDPL did not have any fixed assets on that date and had earned a revenue of Rs 2.59 crore primarily in the form of “other income” and made a net profit of Rs 42.80 lakh in 2009-10.
  • Nevertheless, IBSPL managed to meet the financial requirements for bidders – an earnest money deposit in the form of a bank guarantee from Axis Bank of Rs 252.5 crore, a sum that was a hundred times its net worth! (Doubts have been raised about the authenticity of this bank guarantee, but that’s another story.)
  • The results of the auction were declared on the afternoon of June 11 with the approval of the IMC, indicating that IBSPL was the winner.
Enter Mr. Mukesh Ambani Photo; AFP
  • Meanwhile, on June 11, that is, on the same day (!), at an extraordinary general meeting of its shareholders called at short notice, IBSPL raised its authorised share capital by 2,000 times, from Rs 3 crore to Rs 6,000 crore by issuing 75% of its shares to Reliance Industries Limited (RIL), a listed company and India’s single biggest corporate entity in the private sector, making itself a subsidiary of the latter.
  • On June 19, 2010, IBPSL ceased to be a private limited company and became a public limited company. On January 22, 2013, the company was renamed Reliance Jio Infocomm Limited. This was done before IBSPL’s memorandum of association – a document that governs the relationship of the company with external entities – was altered and the increase in its authorised share capital recorded by the Registrar of Companies in the Ministry of Corporate Affairs.
  • The director general (post & telecommunications) at the CAG’s office had some sharp observations to make in his draft report: that IBSPL had not declared its relationship with Reliance Industries as an associate or partner in its application for participating in the auction for 4G spectrum when details of all applications were disclosed on the website of the DoT on April 6, 2010.
  • The draft report of the CAG prepared in 2013 did not mince words: “The DoT failed to recognise the tell-tale sign of rigging of the auction right from [the] beginning of the auction” in which a small ISP, Infotel Broadband Services Pvt Ltd (IBSPL) emerged as the winner of pan-India broadband spectrum by paying 5,000 times of its net worth.
In other words, the competitors never knew that they were actually competing with Reliance and not some small unlisted company with a negligible net-worth! Had they known, the competition would have been completely different.
That is how Mukesh Ambani pulled off a Tyrion Lannister.
What he and Reliance did is, in a way, reminiscent of Tyrion Lannister's extraordinary move in the Battle of Blackwater Bay scene from the ninth episode of the second season of the Game of Thrones:

The negative press for the ONGC oil scam and all the competitors in the telecom industry, blown to bits in one stroke?

1 comment: