Anil Ambani must breathe a sigh of relief as SEBI passes a consent order for RNRL,Reliance Infra and it’s Directors in a probe involving misuse of ECB funds

Anil Ambani may well feel blessed on this auspicious  day of Makar Sankrant….he and his companies have been let off lightly by SEBI today…his kites should fly higher from now…that’s my take on today’s SEBI Consent Order passed

In a Consent Order each of his two companies Reliance Infrastructure (earlier Reliance Energy) and RNRL (since merged with Reliance Power) and it’s Directors have been fined Rs 25 crs each…The companies cannot invest in the secondary markets till December 2012,except for mutual funds while Anil Ambani and the Directors have been barred from secondary markets till December 2011…Interestingly Raising Monies through Primary markets has been kept out of this Order…this must have been negotiated strongly…as Anil Ambani’s both Power Companies will surely require to raise huge Capital of thousands of Crores in the coming two years and even beyond as they step up their Capex Plans to complete and commence commercial operations in power projects and meet MW targets in the committed timeframe    

The Consent Order means there is no admission or denial of guilt…consolation to those looking for it is that those involved are not exonerated from what happened

So what was this matter…….. 

In 2007 the then Minister of State for Finance Pawan Kumar Bansal accused Anil Ambani-led Reliance Infrastructure, earlier known as Reliance Energy, of violating overseas borrowing and foreign exchange rules by investing funds raised abroad in the domestic capital market.

Bansal also said that the Enforcement Directorate (ED) was examining the violation for necessary action against the company.

The company borrowed around USD 360 million in July 2006. In April 2007, it brought USD 300 million into India and invested it in debt mutual funds. It then remitted USD 500 million, including the proceeds of the USD 300 million brought into India, in March 2008 to invest in an overseas arm, Bansal added.

The company had also availed of USD 150 million through the approval route and the amount was brought into India in November 2006.

This charge was yet again repeated in December 2009 a written reply in the Rajya Sabha by the Minister of Finance Namo Narain Meena…that RBI had spotted the use of external commercial borrowings in that these were used for investment in domestic debt funds violating ECB guidelines   

So let’s put this in context

Rs 50 crs is the highest SEBI Fine imposed so far…..assuming ADAG companies misused all of the US  $ 500 million overseas borrowings to invest in India…they would have made fixed returns in access of US $ 50 million over a year or two…that’s near Rs 250 crs minimum…so Rs 50 crs is 20% of this……the companies must have reinvested these earnings too….so Rs 50 crs Fine may actually work out even lower than the 20% I am assuming

Clearly SEBI and the Enforcement Directorate and RBI must have evidence of wrongdoing and Anil Ambani was itching and was well adviced to seek consent terms and close this matter….atleast no investor directly lost monies in the secondary markets  in RNRL or Reliance Infra due to this  wrongdoing…ofcourse there was an indirect unfavourable impact due to ensuing probes

But I am more interested in how SEBI closes the Insider Trading Probe with Mukesh Ambani and Reliance Industries which affected many Investors in the secondary market who lost Rs 1000 crs inside two weeks…with all gains going to Reliance Group Nexus of Companies….my sense is that Mukesh too will get away relatively lightly without admitting or denying any guilt….and the Fine imposed may well be a record Rs 100 crs or 20% of Rs 500 crs (that is commonly projected by the media as the insider gains made)….but what about all those who lost monies in this insider game !?…how will they be compensated for this !?….This is the third time Mukesh has approached SEBI to negotiate a Consent Order for this wrongdoing…His earlier two applications have been rejected as being too low a compensation proposed to be paid by those who perpetrated this insider trading

Want to get a better idea of this Insider Trading Game played out by Reliance in November 2007 click on both these earlier blogs in August 2008

Consent Orders are increasing being used as a tool by powerful and moneyed promoters to close probes…Fines are paid as a pittance of what unholy and illegal benefits these guys and their nexus groups have obtained at the cost of hapless Investors !….in this context wonder what precedent SEBI is creating….allowing Consent Terms for those who blatantly and fearlessly violate all laws and make hundreds of crores at the expense of speculators,traders and investors who unawaringly fall into their insider trap and years later get away with paying a small % of the Gains as a  Fine

Like it directed in the IPO multi applications probe in the primary markets,where SEBI worked out a mechanism to fine the culprits and compensate those who lost out on allotments in the IPO,I hope SEBI works out some similar mechanism to compensate those who lost out in Insider Trading Scams too in the Secondary Market…for example it can easily find out from NSE Records that in November 2007 when Reliance Group nexus Entities went berserk and went short in RPL Futures in Derivatives who were those went long in them against these sellers….and compensate them for their subsequent losses in this insider trading scam when RIL began to unwind RPL Shares in the Spot Market later in the same month resulting in the crash of RPL shares from Rs 290 levels to Rs 160 levels  

Just recently even promoters of Gujarat NRE paid SEBI Rs 2 crs as a fine for Capital market excesses

Roll back quite a few years…before Demat came into being….even Reliance Consultancy,a Registrar then,and part of the Reliance Group..and late Dhirubhai Ambani was alive then….paid SEBI a fine of just Rs 5 lakhs that was the maximum stipulated then,and quietly closed their business when it was facing charges of criminal duplicity,if I remember correctly of cancelling shares in existence and even issuing Duplicate Shares for shares already in circulation

No Wonder Retail Investors shy and cry away from Secondary Markets…they see Listed Scrips as Snakes waiting eagerly to pounce and  bite into their Naivety and Stupidity and courage in investing in the Secondary Markets  !….when even Experts come with an Expiry Date then what chance of Survival do Retail Investors have !? 

Cheers !