Reliance Communications, Unitech Tumble After Charges Filed Over 2G Sale

Reliance Communications Ltd. and Unitech Ltd. (UT) dropped in Mumbai trading after officials at their groups were charged by federal investigators in a probe into the sale of mobile-phone licenses.

Unitech fell the most in a week, while billionaire Anil Ambani’s Reliance Communications had its steepest decline in three weeks. The next hearing in the case is scheduled April 13.

Executives at three Indian companies, Anil Ambani’s Reliance group and a former telecommunications minister were charged by the Central Bureau of Investigation April 2 as trials are to begin. Prime Minister Manmohan Singh agreed in February to a parliamentary probe of the license sales, after opposition protests paralyzed legislation.

“The confidence level of companies in the government will be dented,” said N. Bhaskara Rao, chairman of the Centre for Media Studies in New Delhi. “Companies will have to think twice about deals they enter into with the government. Companies will be also be more cautious dealing with ministers in the future.”

Former telecommunications minister Andimuthu Raja, his personal secretary R.K. Chandolia, former telecommunications department secretary Siddhartha Behura, former DB Realty Ltd. Managing Director Shahid Balwa, DB Realty Managing Director Vinod Goenka and Unitech Ltd. Managing Director Sanjay Chandra, were among those charged by the CBI April 2, as well as Reliance ADA Group Managing Director Gautam Doshi and Senior Vice Presidents Hari Nair and Surendra Pipara.

Photographer: Pankaj Nangia/Bloomberg

Andimuthu Raja, former India's minister for computer and telecoms. Close

Andimuthu Raja, former India's minister for computer and telecoms.

Close
Open
Photographer: Pankaj Nangia/Bloomberg

Andimuthu Raja, former India's minister for computer and telecoms.

Denying Charges

The companies charged were Reliance Telecom Ltd., Unitech Wireless and Swan Telecom Pvt., A.K. Singh, a government lawyer, said outside a court in New Delhi.

Unitech fell 1.7 percent to 41.25 rupees at the close of trading in Mumbai, after earlier falling as much as 16 percent. Reliance Communications dropped 2.4 percent to 109 rupees. DB Realty Ltd. (DBRL), India’s worst-performing developer this year, tumbled 2.7 percent to 113.65 rupees.

A Reliance ADA Group e-mailed statement said its three employees deny the charges and have a legal presumption of innocence pending the completion of a trial. A call made to the mobile phone of Raja’s lawyer, Ramesh Gupta, was not answered.

Unitech said in an e-mailed statement that it complied with applicable rules in obtaining its licenses and that none of its employees have done anything “inappropriate or illegal”. DB Realty’s Goenka said he couldn’t immediately comment.

Minister’s Resignation

Balwa hasn’t done anything “inappropriate or illegal,” DB Realty said in a statement to the Bombay Stock Exchange on March 29. Raja has previously denied any wrongdoing.

Raja resigned in November, two days before the nation’s chief auditor said in a report that the second-generation airwaves were sold in 2008 for an “unbelievably low” $2.7 billion, causing a loss of as much as 1.4 trillion rupees ($31 billion) to the nation. Raja, his personal secretary and an ex- bureaucrat were arrested in February.

Raja and the other former government officials were charged under the Prevention of Corruption Act. The company officials and companies were charged with “lesser offenses” under statutes relating to conspiracy, cheating and forgery.

The CBI has argued in court that Raja conspired to benefit companies including the then-Swan Telecom, now known as Etisalat DB Telecom India Pvt., and Unitech by violating guidelines in the license sale.

Auditor’s Report

The Comptroller and Auditor General of India said in a report submitted to parliament on Nov. 16 that applications from companies including Swan Telecom and Unitech should have been rejected because they were ineligible.

Swan Telecom suppressed information and submitted false documents in its license application, the auditor said, while six companies belonging to the Unitech Group also fraudulently suppressed facts in their license applications, “misleading” the Department of Telecommunications in order to win licenses in 20 service areas, the report said.

Department of Telecommunications rules stipulate that an operator can’t own 10 percent or more in another operator that provides services in the same telecom zone.

Reliance Telecom “held only 9.9 percent of the equity share capital of Swan Telecom at the time of filing the relevant license application in March 2007,” the company said in an e- mailed statement Feb. 13.

The company said “as per the provisions of the Companies Act 1956, the preference share capital held by Reliance Telecom in Swan Telecom is not to be included for purposes of determining shareholding levels.”

Reliance Telecom is a wholly owned unit of Reliance Communications Ltd. (RCOM), the main company in Anil Ambani’s Reliance ADA Group.

To contact the reporters on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; PS Patnaik in New Delhi at ppatnaik2@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.