Delhi/Mumbai: On April 22, American social media giant Facebook announced an investment of US$5.7 billion (about Rs 43,574 crore) to acquire a 9.99% stake in Reliance Jio, the Reliance group’s internet data and telecommunications wing. This was soon after a reshuffle within the family in the shareholding of India’s largest private corporate entity Reliance Industries Limited (RIL), which is the Reliance group’s flagship company and of which Reliance Jio is a subsidiary.
According to data on “block transactions” of shares available on the website of the Bombay Stock Exchange (BSE) together with publicly available regulatory filings, we reconstructed how shares were moved around among different entities within the promoter group of RIL in the last week of the financial year that ended on March 31, after the countrywide lockdown was announced on March 24 by Prime Minister Narendra Modi.
Through two transactions, the first on March 25 and the second on March 27, the stake of the largest shareholding entity in RIL’s promoter group––a company named Devarshi Commercials LLP (limited liability partnership)––was brought down from 11.21% to 8.01% by selling 20.26 crore shares in the open market. Two other promoter group companies, Tattvam Enterprises LLP and Samarjit Enterprises LLP, bought the bulk of the shares, 19.28 crore shares to be precise.
The three LLP firms all belong to RIL’s “promoter group.” The website of the Ministry of Corporate Affairs provides information on Devarshi Commercials and Tattvam Enterprises. Both entities list Nita Ambani and Akash Ambani as directors, along with a close associate of the Ambani family – Priyen Jayantilal Shah. Samarjit Enterprises lists Shah and Sanjeev Moreshwar Dandekar as directors. All three companies share the same registered office address in Mumbai’s Nariman Point. Shah, who declared the transactions, is the authorised signatory to regulatory filings made by, and on behalf of, the promoter group to the BSE and the National Stock Exchange (NSE).
The remaining 98.17 lakh shares of RIL sold by Devarshi Commercials LLP were split between the five members of the family of India’s (and Asia’s) richest man Mukesh Ambani––his wife Nita, and their three children Akash, Isha (who are twins) and Anant. Through these purchases, the stake of each individual family member in RIL rose to 75 lakh shares.
Little noted at the time the transactions took place, apart from those who closely track stock market transactions, RIL’s promoter group stated in a regulatory filing that “overall, the promoter group shareholding remains unchanged.”
These transactions themselves had led to an 11% rise in RIL’s share price on 20 March, the day after the move was announced through a filing to the NSE. After the share transfer took place, the next major gain in RIL’s share price occurred on 22 April, when the Facebook deal was announced. Having hovered between Rs 950 and Rs 1,100 per share at the time of the purchase, RIL’s stock price went up significantly to Rs 1,359 at the close of market trading on the day of the deal. According to data received by the authors (see table), the Ambani family stood to notionally gain a little over Rs 292 crore (or the equivalent US $37 million) simply as a result of the change in ownership patterns that preceded the Facebook deal.
A financial analyst, who spoke to the authors of this article on condition of anonymity, suggested that there could be an explanation for the transactions within the entities of RIL’s promoter group before the end of the financial year. He said that such shuffling around of shareholdings among different entities within promoter groups of large corporate conglomerates is a practice that is, on occasion, deployed for tax planning.
“The purpose of the shuffling of shares could be to show capital losses in some entities and capital gains in others, or to reduce the assessable incomes of promoters and directors without changing the overall shareholding of the promoter group in the flagship entity,” the analyst said. “Such activities are often to off-set losses against realised gains thereby saving on payment of taxes.”
While reporting this article, one of the authors of this article (Paranjoy) sent a questionnaire by e-mail to Mukesh Ambani at 10:16 am on 24 April 2020 containing certain calculations. (A revised version of these calculations has been presented in this article.) At 11:46 am on the same day, the same questionnaire was forwarded by e-mail to Tushar Pania, Vice President, Corporate Communications, Reliance Industries Limited.
At 7:57 pm on 24 April 2020, Paranjoy received the following e-mail from Atul Dayal of A.S. Dayal and Associates, Advocates and Solicitors, a firm based in the Fort area in Mumbai. Dayal’s letter is reproduced here verbatim and in full:
Dear Mr Thakurta
Our clients Reliance Industries Limited has placed in our hands a communication addressed by you today to Chairman and Managing Director Shri. Mukesh D. Ambani, in which, you have raised a query regarding ‘trading’ of shares of RIL within the family members and entities fully owned by members of the Ambani family.
By your communication, you have sought to cast aspersions on a ‘transaction’ which is intended at reorganising family holding amongst family members and entities fully owned by them.
To ascribe any impropriety or to say that it has resulted in large profit, as is depicted in your calculation, is grossly erroneous and a misrepresentation intended to mislead the readers.
Please further note that our clients had given notice of this ‘transaction’ to the exchanges and this ‘transaction’ was carried out in compliance of the extant rules.
Stated in brief, the true and correct facts are as follows:
- The ‘transaction’ referred to in the query is “a transfer within the family and family entities” i.e “interse” within the promoter family members and 100% family owned entities.
- All the entities namely Devarshi commercial LLP , Tattvam Enterprises LLP, Samarjit Enterprises LLP are all 100% family owned.
- There was not and cannot be any “profit” or “loss” to the family in a transfer of shares within the family.
- The trades were Sale by Devarshi Commercial LLP of 20,26,33,414 shares and purchase of these shares by the family members, Tatvam and Samarjit.
- The Excel Sheet wrongly shows as though (i) Devarshi purchased these 20,26,33,414 shares from third parties and (ii) the others entities and persons also purchased 20,26,33,414 shares from third parties. The ‘Sale of shares by Devarshi’ is erroneously shown as ‘Purchase by Devarshi’. Prices of 22/04/2020 have been compared and it has been shown as though profit of Rs 14,741 crores has been made.
- If the ‘transaction’ which actually took place amongst the members of the family and entities wholly owned by them are correctly reflected in the Excel Sheet, by putting (-) minus sign before the shares and value of shares of Devarshi, the answer will be zero.
- When there is a transfer of shares amongst the members of a family, from one family entity or person to another family entity or person, no profits or losses can be made.
Our client trusts that you will keep the above facts relating to the nature of the transaction in mind and not resort to any false and misleading reporting.
A.S. Dayal & Associates
Advocates and Solicitors
15-B, Burjorji Bharucha Marg, Fort,
Mumbai - 400 023
Here is the response by Paranjoy Guha Thakurta:
The communication to Shri Mukesh D Ambani casts no aspersion or impropriety whatsoever as has been alleged by Atul Dayal of A S Dayal & Associates, Advocates and Solicitors. It was an inquiry made in a bonafide manner and with the sole purpose and intention to ascertain the facts before any information was published. Information received had been sent to Shri Ambani as well as to a top official of the Corporate Communications department of RIL in order to find out whether or not these were accurate. As will be apparent to the reader of the article published above, there is no contradiction between the factual position stated by Shri Dayal and the published information. As a responsible journalist, a number of phone calls and exchanges of e-mail and text messages were made in order to obtain the viewpoints of RIL and its promoters, including the members of the Ambani family, precisely because we do not “mislead” readers or publish “false” information.
The authors are independent journalists.