Reliance Industries Falls After Manipulation Charge, Trading Ban

  • Shares drop most since Jan., futures trading halted for a year
  • Company ordered to pay back 4.5 billion rupees plus interest

Billionaire Mukesh Ambani’s Reliance Industries Ltd. fell the most in two months after it was barred from trading futures and options on India’s equity markets for a year after regulators found it guilty of manipulating share prices.

Reliance Industries lost as much as 3.1 percent to 1,247.10 rupees, the biggest intraday drop since Jan. 17, and was at 1,249 rupees as of 2:37 p.m. in Mumbai on Monday. The company was the second-worst performer on the benchmark S&P BSE Sensex, which declined 0.8 percent.

The Securities and Exchange Board of India said Reliance, along with 12 unlisted trading houses it used, carried out unlawful transactions in the shares of its former unit Reliance Petroleum Ltd. in late 2007. The regulator ordered the companies to return gains of 4.47 billion rupees ($68.3 million) plus interest, according to an order posted on its website Friday.

“The SEBI order gives out the message to the market that misdeeds will be punished whether it’s a big company or a small one and no matter how well-connected and well-regarded it might be,” said Amit Tandon, the managing director of proxy advisory Institutional Investor Advisory Services India Ltd. “There will be a protracted lawsuit but the ruling still sets the process in motion.”

‘Not Normal’

Reliance bought shares of its unit between March and November 2007, SEBI said it in its order. The company then took short positions, or bets that the share price will fall, in Reliance Petroleum futures for November before starting to sell the shares in order to push down the price and make additional profits from the short positions it had taken in the futures, the regulator said.

“This is not a normal case of price manipulation or volume manipulation,” SEBI’s whole time member G. Mahalingam said in the order. This is a unique strategy of “manipulating the settlement price in one market to gain across the volumes accumulated in the other market,” he wrote.

Reliance Industries said Friday it will appeal the judgment as it believes the trades in Reliance Petroleum shares were genuine and carried out in the interest of its shareholders.

“SEBI appears to have misconstrued the true nature of the transactions and imposed unjustifiable sanctions,” the Mumbai-based company said in an emailed statement.

‘Peanuts’ Penalty

SEBI ordered Reliance Industries to pay the stipulated amount within 45 days with interest at 12 percent a year starting in November 2007. The total amount including interest is almost 10 billion rupees, according to Bloomberg calculations.

“Though financially the penalty is peanuts, it might dent the image of Reliance,” said J.N. Gupta, managing director at proxy advisory Stakeholders Empowerment Services in Mumbai. The company reported net income of 80.2 billion rupees in the October-December period on revenue of 666 billion rupees.

Reliance Industries merged with Reliance Petroleum in 2009. The petroleum entity was a listed subsidiary of the Ambani-owned firm and owned a 580,000 barrel-a-day refinery in a special economic zone at Jamnagar in the western Indian state of Gujarat, where the group has the world’s largest refining and petrochemicals complex. 

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