Canadian research firm charges both Relaince groups with shoddy governance

Mukesh Ambani's Reliance Industries (RIL) caused loss of rS25,000 crore to its shareholders by demerging its communications business and subsequently transferring it through a series of transactions to younger brother Anil five years ago, says a 51-page report by a little-known, Canadian research firm Veritas Investment Research.

According to the report, after acquiring control of Reliance Infocom, Ani Ambani, who renamed the firm Reliance Communications (RCOM),  inflated its profit and some key ratios such as EBIDTA, EPS and book value through accounting manoeuvres and poor governance from 2006-2010.

RIL shares were down 1.6 per cent yesterday, even as the BSE Sensex fell only 0.5 per cent.

The Veritas report, Brothers in Arms, Misappropriating a Fortune can be accessed by subscribers on the research outfits' website.
 
''Reliance Communications Limited (RCom)  is the poster child of everything that is wrong with corporate India, and irrespective of management's assertions about ''values'' and ''integrity'' in various annual reports, we find no credible evidence of either in its financial statements or those of its former parent, Reliance Industries Limited,'' a report in a publication called MoneyLife says.

 A Reliance Communication spokesperson told The Economic Times that Veritas had published a ''malicious and motivated report containing baseless allegations, masquerading as research.''

The report also claims that RIL's minority shareholders had taken a hit from the demerger of RCom from Reliance Industries. Veritas said, for the 821.48 million shares issued to management during the formation of RCom, RIL shareholders lost Rs25,204 crore based on the 6 March 2006, RCom closing price of approximately Rs307.