June 05, 2000

Reliance underpriced?
Are we missing something in the Ambani;s different ways of looking at Reliance's share price? On one hand he is repeatedly quoted saying that Reliance is undervalued at Rs. 335, on the other, look at what the company is willing to pay to buy back its own stock at 10 per cent less than even that - a mere RS 303 per share. The buy-back price announced on April 5 represents a 22 per cent premium to the average of its one-year price range. Also, do not forget that the share has already jumped from RS 199 on March 14 this year to its current level. This means that it is Reliance's considered opinion that RS 303 is a fair price for its share and thus a good price for an open buyback offer backed by a Rs 1100 crore kitty. If Reliance now thinks its undervalued, should it now revise its buyback price as well? After all it considers itself an investor-friendly company.

Two years overdue
While RIL has made a bold bid to takeover BSES Ltd through an open offer, it is fighting (through Reliance Capital) a bitter two-year-old battle against a SEBI order asking that it makean open offer for the shares of Jain Studios. Reliance had lent money to the BJP heavyweight J K Jain against the pledge of shares, when it was still a private company. When Jain failed to pay, RIL acquired the shares. Later Jain Studios went public after which SEBI ruled that RIL should make an open offer to public. The issue hinged on the date when Reliance Cap acquired voting rights over the shares. SEBI decided not to depend on its own reading of its Takeover Code and went to SGSoli Sorabjee for an opinion. He first supported SEBI's stand, (nearby two years ago) asking RIL to make an open offer. Later, after a lot of behind-the-scenes action the SG gave a second legal opinion saying that no open-offer was needed. This too was year ago, when he was convinced that voting rights did not transfer to Reliance after Jain Studios went public, but when it was still a private company. Amazingly enough, this too has not resolved the issue. After the SG's second opinion, SEBI is having third thoughts on the issue. For several months, the case, instead of being wound up, is lying with the legal department.

Now for BSES
RIL's open offer to acquire BSES shares also has its intriguing aspects. The bid has been expected for 12 years in fact, ever since it took a substantial of equity in BSES. Earlier the controversy over its attempt to takeover L&T put a lid on the BSES holding, but this time everything seems to going like a nicely scripted play. First, RIL announces a lower than market open-offer price of Rs 234 (market pricebeing RS 255). As a test to seek public reactions to the takeover, it was successful. There has not been a squeak of opposition, either from industry groups on politicians. Then came the vote of confidence with the BSES saying that it does not find the bid hostile. Since a bid for control cannot be neutral, one presumes that BSES finds RIL a friendly acquirer. But one newspaper reports, Indian FIs that hold a 35 per cent stake have decided not to sell their stake as the price is too low. This suggests three possibilities. Firstly, that FIs will 'persuade' RIL to up the bid and then offer the shares having driven a 'hard bargain'. Secondly, RIL prefers not to have the FIs tender their shares, because it is confident of control already. Thirdly, it will simply complete the formality of an open offer, and use its large current shareholding and the creeping acquisition route as its main vehicle for takeover. Having waited 12 years, it can afford to wait a few more, while the management remains friendly.

What happened to them?
t's tough keeping up with the numerous committees set up by SEBI to frame market regulation. After all, its website does not provide a list of the ongoing committees, past ones or of reports already submitted. So when a few of the committees and their reports simply disappear, one tends to lose track of when they were set up. Two of them that come to mind are the M R Mayya committee on uniform settlements and the B D Shah Committee. Maybe some others are still looking for a winding up route.

 

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The author's e-mail address is: suchetadalal@yahoo.com

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