Dhirubhai Ambani and Reliance

THE STOCK MARKET ADVENTURE Contd...

The 1979 issue of Reliance introduced an innovative financial instrument, the partially convertible debentures. However Dhirubhai found it difficult to get permission from the controller of special issues. Dhirubhai argued that this instrument would give investors a guaranteed return and capital appreciation. He lobbied the government until it accepted the concept. This issue was over subscribed 6 times and soon convertible debentures (both partial and whole) became instruments of choice. The 1982 issue generated Rs 500 million. It was the biggest issue in those days.

When the bear syndicate sold Reliance's shares in bulk, Dhirubhai's loyal brokers bought back all the shares, which led to an increase in the share price. The buying took place for 3 consecutive days and forced the scrip to go up. For the purpose, a new company called the “Friends of Reliance Association” was registered because according to the then Indian stock market regulations, a company could not buy back its shares. It bought 857,000 shares out of the total 1.1 million shares sold by Reliance.

After this incident, Ambani was only waiting for an opportunity to take revenge on the bear syndicate. The association which bought the shares, sought delivery on 30 April 1982, a Friday.^[5] But as the bear syndicate did not have the shares it asked for more time, which the association refused and demanded a Rs 50 badla^[6] charge. The Bombay Stock Exchange had to be closed down owing to the situation. The exchange authorities tried in vain to bring about a compromise between the two parties. And then began the panic buying of Reliance shares and the share prices soared to an all time high. By May 10th, the crisis ended. Dhirubhai finally succeeded in taming the bulls.

CORPORATE BATTLES OF DHIRUBHAI AMBANI

Despite his unprecedented corporate valour, some corporate bigwigs considered Ambani to be a manipulator. Critics accused him of using the “more than the usual” ways of obtaining licenses, getting quick approvals for public issues and capital goods imports, and of getting policies formulated in favour of Reliance. Dhirubhai and Reliance were accused of manipulating tariffs to suit their needs and outsmart their rivals. He was considered to be a symbol of all that was wrong with the Indian economy. It is said that Ambani used his connections with key politicians and bureaucrats to obtain licenses and approvals for projects. He is also said to have induced government intervention by offering bribes and using other forms of lobbying prevalent in the US. Reliance was known to engage politicians, journalists, and others to increase its sphere of influence. Some businessmen described Reliance as “an out of control monster, a bubble that would burst any moment.”^[7]

^[5] Alternate Fridays are settlement days on the Bombay stock exchange, when all the transactions taking place in the previous fortnight are cleared.

^[6] Badla, in common parlance, is the carry-forward system, which means something in return. It serves three needs of the stock market: If an investor feels that the price of a particular share is expected to go up or down, without giving or taking the delivery he can participate in the possible fluctuation of the share. If he wishes to short sell without owning underlying security, the stock lender steps into the carry forward system and lends his stock for a charge. If he wishes to buy the share without paying the full consideration, the financier steps into the carry forward system and provides the finance to fund the purchase.

^[7] Gita Piramal,Business Maharajas, Penguin Books, 1996.

2010, ICMR (IBS Center for Management Research).All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means - electronic or mechanical, without permission.

To order copies, call +91- 8417- 236667 or write to ICMR,
Survey No. 156/157, Dontanapalli Village, Shankerpalli Mandal,
Ranga Reddy District,
Hyderabad-501504. Andhra Pradesh, INDIA. Mob: +91- 9640901313, Ph: +91- 8417- 236667,
Fax: +91- 8417- 236668
E-mail: info@icmrindia.org
Website: www.icmrindia.org