Reliance Communications Drops as Ambani Questioned

Reliance Communications Ltd. Chairman Anil Ambani
Reliance Communications Ltd. chairman Anil Ambani. Photographer: Qilai Shen/Bloomberg

Reliance Communications Ltd. fell in Mumbai after billionaire Chairman Anil Ambani was questioned by Indian investigators probing the 2008 auction of phone licenses that may have deprived the treasury of potential revenue.

The worst-performing stock in India’s benchmark Sensex Index tumbled as much as 2.9 percent. Ambani met Central Bureau of Investigation officials to clarify telecom-related issues, Gaurav Wahi, a spokesman for the Reliance ADA Group said in a statement yesterday. No summons was issued to Ambani, Wahi said.

The move may further undermine investor confidence in Ambani, 51, whose companies lost a combined $2.6 billion in market value on Feb. 9, prompting his group to blame brokers for spreading “baseless, sensational” charges. The questioning follows the arrests of former telecommunications minister Andimuthu Raja and at least two other officials after the nation’s chief auditor said the sale of permits at below-market prices may have potentially cost the treasury $31 billion.

“Reliance Communications sends a lot of letters to shareholders to say everything is fine, but my feeling is that everything is not alright,” said Vienna-based Juergen Maier, who manages a 250 million euro ($337 million) India equity fund at Raiffeisen Capital Management. “It’s not the first time it’s been questioned and this confirms the image investors have.”

India’s second-largest mobile-phone operator dropped to as low as 96.75 rupees and changed hands at 99 rupees, down 0.6 percent, at 10:20 a.m. Ambani’s Reliance Infrastructure Ltd., Reliance Capital Ltd., Reliance Power Ltd. also declined.

‘Dead Serious’

Prime Minister Manmohan Singh, whose government has been buffeted by corruption scandals, said in a meeting with a group of television editors in New Delhi yesterday that his administration is “dead serious” about punishing the guilty.

The CBI has also questioned Unitech Ltd. Managing Director Sanjay Chandra, who said Feb. 15 his company is fully cooperating with the investigation.

The bureau has said in court that Raja conspired to benefit companies including Swan Telecom Ltd., now known as Etisalat DB Telecom India Ltd., and Unitech by violating guidelines in the license sale. India’s chief auditor said in November second-generation airwaves were sold for an “unbelievably low” $2.7 billion when they may have been worth at least 10 times more.

“All the nine telecom companies that received the licenses are being questioned,” Chandra said in an e-mailed statement on Feb. 15.

No Benefit

The CBI sought information from Ambani amid allegations that his group received favors from Raja and over the role of Reliance Telecom Ltd., a unit of Reliance Communications, in Swan Telecom, the Press Trust of India reported yesterday, citing investigators it didn’t identify.

The statement from Ambani’s group said no official or affiliate held shares in Swan Telecom at the time it won a phone license and no employee benefitted from the award.

“There would be a significant impact on the group only if something concrete is unearthed,” said D.K. Aggarwal, who manages about $100 million as chairman of SMC Wealth Management Services Ltd. in New Delhi. “The group has taken a hit as far as sentiment is concerned though the developments aren’t going to have a material impact.”

‘Wrongly Implicated’

The CBI arrested Shahid Balwa, vice chairman of Etisalat DB Telecom Pvt., formerly Swan, on Feb. 8, a week after detaining Raja in the phone probe.

Balwa, who is also the managing director of DB Realty Ltd. was “wrongly implicated,” according to a company statement on Feb. 9. Raja’s lawyer, Ramesh Gupta, said the former minister was cooperating with investigators and shouldn’t be kept in custody.

Ambani is also chairman of Reliance Capital Ltd., which owns an 18 percent stake in Bloomberg UTV, an Indian television channel. Bloomberg LP, the parent of Bloomberg News, owns part of the Indian venture.

An atmosphere dominated by claims of wrongdoing by his ministers had hurt the image of India overseas, he acknowledged, adding the compulsions of coalition played a role in how he allocated cabinet portfolios. Raja is a leading member of the ruling party from the southern state of Tamil Nadu, a key partner in Singh’s ruling alliance.

“The scam is huge and tarnishing the image of India,” said Taina Erajuuri, who helps manage the equivalent of $1.2 billion of emerging-market stocks, including Indian shares, at Helsinki-based FIM Asset Management Ltd. “The government is trying to show the world they are doing something, and they are going after the top guys.” Erajuuri’s funds own no shares in Ambani’s companies.

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