Mothers and Corporate Governance

How complicated can the RIL-RNRL dispute get? Very. Well, that’s what it looks like if you look at the arguments from both sides.

RIL’s legal team likes to make it seem like a business dispute between two companies and not a family affair, which I guess is right. RIL also feels that the High Court order has adverse financial implications for the company besides national implications and it gave an unfair advantage to the ADA group based on a family agreement in 2005. Besides, company sources have argued that the ruling, in a way, would override the government’s gas allocation and pricing policy. Then there is the scope for miscarriage of justice since RNRL will get gas at half the cost ($2.34 per mbtu) of what it costs ($4.65) for other gas buyers of RIL. So which way the dice is loaded ?

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For RNRL, it's the MOU that's sacrosanct. Nothing more, nothing less. End of the argument.

Yeah, then there is the mother factor. Kokilaben is also drawn in to mediate in case the brothers get around to it. Given that both companies are widely held joint stock corporations where there are millions of other shareholders involved, how fair it is to leave business judgments to family members that have never held executive positions in the company or are not adequately trained or exposed (I mean first hand, not of the kind *I-had-been-at-the-dinner-table-with-my-husband-and-sons-as-they-discussed-business*) ? Is that good corporate governance leaving the fate of millions of shareholders to mother of just one among them?

Why not let mothers be mothers for a change? It’s not like wandering into the kitchen sniffing for hot Dhokla and Khandavi that Kokilaben will be happy to engage with all her heart and soul.
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ASATYAM COMPUTERS ?

“Satyam” in Sanskrit and a host of Hindu Dravidian languages like (Tamil, Telugu, Kannada and Malayalam) means Truth / Honesty.

“Asatyam” means just the opposite.

With the investor backlash over the attempted skullduggery by its management (with just 8% stake) to bailout the slumping Raju family group (Satyam founders) concerns MAYTAS Infrastructure and MAYTAS Properties (MAYTAS incidentally is SATYAM spelt reverse) for $1.6 billion (that's all the cash in its balance sheet!) and the subsequent calling off, there seems to be a good case for renaming the company as ASATYAM Computers. It’s not its first attempt by the minority management to oppress other minority shareholders. The group is known for its several dubious pursuits committed with impunity earlier.

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Say No to DLF buyback at Rs.600/-

So, why is everybody questioning DLF buyback?

As per filings before NSE, the company will spend close to Rs.11 billion ($255 million) to buyback 22 million equity shares at price not exceeding Rs.600 per equity share. Giving in to the babble around the expediency of this bold decision, I ran a check on the DLF data.

The company had revenues of Rs.60.58 billion and an EBITDA of 31.18 billion for FY 2007-08. So the EBITDA margins are in the range of 51.47%. The company has an interest outgo of Rs.4.48 billion during the period. DLF is an industry leader, let’s assume its cost of funds at an average of 14%. That means it has a debt of about Rs.32 billion in its books (Rs.4.48 billion x 100/14). Now if you imagine 14% funds getting deployed in a 51.47% margin earning business, it is a no-brainer to decide in favor of its retention in the business.

Why is then DLF bent on spending Rs.11 billion to buyback just 1.18% of its equity? Bravado? Why don't they retain that cash and plow it back in business?

I think it has to do with the high promoter holdings in the company. First off, in a buyback, even as the company forks out funds to buy its stock back, it is the promoter who gains in individual wealth since his % stake goes up. The SEBI formula - six months’ average of daily highs and lows or the last two weeks’ average, whichever is higher – comes as a blessing in disguise now that DLF prices have declined by over 50% of their all time high. So if the stock price is not kept propped up, the founder K.P.Singh’s family holdings of about 88% will have to be eventually valued lower. Being a high beta stock, DLF price will revive faster when markets improve and the founders know it only too well. That’s when the promoters stand to gain if they choose to dilute their stake and cash out.

So it pays to think like a promoter. I see a clear 50% upside from current valuations in about six months when the current turbulence fueled by oil price surge and political tempest settle down and the realty sector looks back up. What say you?

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Now it's Amar Singh - ADAG dance

With the Left gone, Politics in India has become a lot easier to grasp. It is no longer Congress+Left Vs. BJP+Allies. It is now split between the Reliance family factions - Mukesh Ambani camp Vs.Anil Ambani camp. Here is my earliest prediction. Look at how Amar Singh, SP general secretary rips Finance Minister P. Chidambaram and Petroleum and Natural Gas Minister Murli Deora at a media briefing Saturday.

"I am not asking for my pound of flesh. We are against anti-people policies. Deora's behaviour is disgusting. He should come clean on whether he is a corporate honcho [for Mukesh Ambani's RIL] or a minister".

Regarding Chidambaram, Singh said: "Under his stewardship, price rise and inflation have happened."

Politics never baffle me. In fact they help me balance my portfolio by just looking at the daily news headlines. If Murli Deora is in the limelight, go buy Mukesh Ambani’s RIL, RPL stock. Of late Samajwadi Party and Amar Singh steal the show. It’s time to trade loyalties. Remember how Sahara group was let off by RBI recently? Go long on ADAG group – Reliance Capital, Reliance Infrastructure, R-Com, RNRL, Reliance Power, Adlabs.

What about the Indo-US nuclear deal? That has never been the central issue except for the Left. Nobody ever had a clue whether it is good or bad for the country. The comrades led by Prakash Karat just opposed all things American as if the Left is run by the Chinese – financially if not ideologically. Ideology is in severe short supply amongst the communists now. Want proof? See where China parks its surplus - rushing to hold stake in Blackstone Private Equity, the capitalist moniker.

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The McKinsey Annuity

Global consulting firm McKinsey advises businesses and usually gets paid. It might as well be its first, having to move the Bombay High Court against two of its big ticket clients [Reliance Industries (RIL) and Reliance Communications (RCom) ] for non-payment of its bill - in this case a fee of Rs. 270 million ($ 6.7 m). As events went, after patriarch and founder Dhirubhai Ambani’s death, the Reliance group had split right down the middle between the two feuding sons' camps in June 2005. Elder son Mukesh Ambani got Reliance Industries (petrochemical, oil and gas businesses), younger Anil settled for the group’s power, telecom and financial services businesses. McKinsey had signed an agreement back in 2001 with RIL before the split, to roll out RCom.

The terms had also offered McKinsey some top ups if RCom revenues were to cross the high watermark of Rs 10,000 crore ($2.46 b) which it did last year. But when McKinsey presented its claim to RCom, it refused payment stating that the deal was between RIL and McKinsey and RCom is not a party to it. Neither would RIL pay up since RCom has since been spun off and now it belongs to the Anil Ambani camp, with which it stands daggers drawn on several issues.

Tricky situation for McKinsey. So it will be for the High Court Judge too, I guess. Further the $ 6.7 m Mckinsey bill also looks more like a milestone based annuity to me…

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Won’t be surprised if the Judge refers it to Insurance Regulator for fairness opinion…!

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