• • •
By late 1984 Dhirubhai had reached a new plateau of acclaim and thereafter frequently featured on the covers of Indian magazines. Over the next year he announced plans for a massive expansion of Reliance, by moving further back along the raw petrochemical chain to become India’s first producer of purified terephthalic acid (PTA), to make the other main ingredient of polyester, monoethylene glycol (MEG), and to make the associated products linear alkyline benzene (LAB; for use in biodegradable detergents) and high-density polyethylene, a plastic. Patalganga would also be expanded via a 45 000-tonne-a-year plant to make polyester staple fibre (PSF) fibres of a set or staple length, which are spun together to produce a less shiny yarn than the long filaments in PFY.
Probably the pinnacle of Dhirubhai’s popularity was reached on 20 May 1985, when Reliance hired Bombay’s Cooperage Football Grounds as the venue for the annual general meeting to approve results for 1984. About 12 000 shareholders turned up to sit under canvas awnings stretched above the grass and to watch the directors via television monitors. It was reported as the first AGM ever held in the open and the largest ever meeting of shareholders – attracting note just for that fact the next day in London’s Financial Times.
Dhirubhai arrived in a suit, but soon got down to shirtsleeves to report the previous year’s 58.6 per cent jump in net profit and to list various new projects totalling Rs 6.72 billion in outlays. India had recently had its first taste of hostile takeover bids when the London-based expatriate Indian, Swraj Paul, had bought into the machinery manufacturers DCM and Escorts. If anyone tried that with Reliance, they would have to deal with 1.2 million loyal shareholders, said Dhirubhai to loud applause.
The shareholders enthusiastically approved a name change symbolising Dhirubhai’s wider ambitions. The word ‘Textile’ was dropped from the company’s name. After approval by company regulators in June, it was simply Reliance Industries Ltd.
But even the friendliest commentators felt compelled to mention that Dhirubhai had many critics and enemies who called him an arch-manipulator of politicians and bureaucrats. ‘It is not for nothing that this dark horse from Gujarat has achieved the reputation in textile circles of being the best friend and the worst enemy one could have,’ said BusinessIndia. In most cases, these criticisms were put in a way that gave Dhirubhai the chance for a free kick. Authors Margaret Herdeck and Gita Piramal quoted him as saying, ‘Ideas are no one’s monopoly’: ‘Those who criticise me and Reliance’s growth are slaves to tradition.’ If not to outright conservatism and complacency the criticisms were put down to jealousy.
But two of India’s sharpest business journalists did get Dhirubhai to admit that stroking government was his biggest task. ‘The most important external environment is the Government of India,’ he told India Today’s T.N. Ninan and Jagannath Dubashi. ‘You have to sell your ideas to the government. Selling the idea is the most important thing and for that I’d meet anybody in the government. I am willing to salaam anyone. One thing you won’t find in me and that is ego.’
The criticisms were brushed aside by most investors, however, as well as by many of the journalists. The ‘dark’ side of Dhirubhai was part of his attraction. It was a thumb in the nose at the bureaucrats, the corrupt politicians and an exploitative business elite seen as cornering the wealth of India and wasting it.
For the Gujaratis who formed much of the business and professional class of Mumbai – but few of the big entrepreneurs – Dhirubhai was one of them. He had taken on and beaten the Parsis, the Marwaris and the Punjabis at their own game. Called ‘Gujjus’ and often sneered at by other Indian communities for their parsimonious, apparently money-obsessed ways, the Gujaratis had ‘made it’ through Dhirubhai.
If he had bent the rules, engineered loopholes, cleverly avoided tax or given bribes, Dhirubhai was only doing what any other industrialist would do, given the opportunity or the ability to carry it out. How else would a complete newcomer with no capital or education get the breaks?
The only victims, it seemed, were the government, which did not get as much tax revenue out of Reliance as perhaps it should, and the bureaucrats, who could not get their vindictive pleasure out of blocking or crippling a private sector endeavour or rents from permitting it. After centuries of rule by alien governments, many Indians – especially the traders and farmers – had come to regard anything sarkari (governmental) as trouble. By the 1980s the government of independent India was similarly suspect in places like Bombay and Ahmedabad.
Dhirubhai worked in an office in Bombay’s Nariman Point business district. He drove around town in a Cadillac (augmented by 1985 with a gold-coloured Mercedes). He took helicopters out to Patalganga and new sites in Gujarat (even using the Maharashtra state governor’s helipad in Bombay for a while) and, as the years went on, was in touch with the highest in the land. But he still looked and felt like an outsider. ‘Dhirubhai never moved around with the social crowd like the Wadias, the Godrejs, the Singhanias,’ said one senior Bombay journalist. ‘He was not considered in the same league – you know how snooty they can be. He would go to the Harbour Bar [in the Taj Mahal Hotel], have a drink, watch everybody, then leave.’
The sense of exclusion might have been what drove him onwards. It also lent an edge to his public image, turning him, like many of the newer movie characters, into a khalnayak, an anti-hero. Those who followed Dhirubhai in the stockmarket were not just part of the Reliance family but also members of an unspoken rebellion.
7
Friends in the right places
This was the public face of Dhirubhai Ambani. Known to a small circle of insiders was a different face. Shadowing the industrial and marketing activity, the published financial workings of Reliance, was a second operation: the systematic manipulation of share price, publicity and government policies in order to sustain the Reliance success story and keep the public money coming in. Every company attempts to some degree to improve these elements of its operating environment. Few have ever matched Reliance in its sustained efforts.
By being able to transform debt quickly into equity Dhirubhai seemed to have avoided the borrowing trap that eventually caught up with so many other stars of the global sharemarket boom in the 1980s. By expanding only into associated products, he created enormous internal economies for Reliance. But it was still a balancing act that required a lot of forward momentum and constant oiling of the machinery. It was generally agreed that Reliance’s high share price was the single biggest factor in the ease it enjoyed in raising finance. Reliance shares were promoted relentlessly as a path to rapidly appreciating wealth. Dhirubhai was free with allocations to friends and clients from the directors’ quotas of any issues, although these share parcels ‘usually come with the stipulation not to sell for two years’.1
The business chronicler Gita Piramal also noted how central was the share price: ‘Ambani realised that in order to seduce the public into investing in his schemes, he had to offer them something above and beyond what they were already used to getting. And this was the steady appreciation of their shareholding … At the time, Ambani didn’t realise that he had mounted a treadmill from which he would never be able to step off.’2 In theory that need not have been the case. Had the funds raised by Reliance been promptly deployed in productive investment, Reliance would have been able to rest on its laurels from time to time. But after the fast completion of the PFY plant in 1982 and the PSF plant in March 1986 at Patalganga, the company’s investment targets constantly slipped. It faced political obstacles in front of new sources of funds.
And in any case Dhirubhai needed a constant, substantial stream of income to cover his political payments, top up the official salaries of his executives with cash (company law then placed limits on salaries) and keep various benefits flowing to his network of contacts. To some extent, this could be generated by market play in the management shareholding, spread between scores of investment and trading companies. This meant that Dhirubhai really was on a s
piral he could not get off. Not that he wanted to. His daily activity was a constant adrenalin rush, in which he continually proved his mastery of India’s markets in yarn, textiles, petrochemicals, shares and finally money itself. In the process, Reliance became a ‘pure cash flow operation’, according to a stockbroker who worked closely with Dhirubhai. ‘They do not distinguish between revenue and capital,’ the broker said. ‘They only operate on a cash flow.’
Assisting Dhirubhai to juggle money between Reliance, associated private companies, banks and the markets was a close band of trusted staff. Some were family. Foremost was his nephew, Rasikbhai Meswani, who knew all the ins and outs of Dhirubhai’s private accounts, including his contributions to politicians and parties, journalists and others. Others were old acquaintances from Aden or Saurashtra, like senior managers Indubhai Seth and brother Manubhai Seth, or Chandrawadan (‘Mama’) Choksi. The company secretary of Reliance, Vinod Ambani (no relation), was in most cases the common link to the growing number of shelf companies that often had their registered office, but not necessarily a nameplate, in the same address as one or other of the Reliance offices around Bombay or Ahmedabad and whose activities were put down as ‘trading and investment’.
The story is told that Vinod Ambani or some other executive once came to Dhirubhai to get some guidance on what to name the host of new companies being spawned. Dhirubhai told him to get out an ancient Sanskrit scripture called Vishnu Sahasra Nam (‘The 1000 Names of Lord Vishnu’). Many of the investment companies unearthed during later scandals did indeed bear the names of divine avatars.
If the nerve centre was the Reliance corporate headquarters in Maker Chambers IV at Nariman Point, or wherever else Dhirubhai happened to be, the essential plumbing was at the share registry and transfer agency for Reliance, which handled the ownership details and paperwork of the company’s shareholders, some 1.2 million by the end of 1986. The registry was often described as ‘in-house’ but was in fact a separate company, Reliance Consultancy Services Ltd, which had several hundred staff of its own working in a large building in Bombay’s distant industrial suburb of Andheri.
Dhirubhai met few objections to his accountancy from his auditors, in particular the firm of Chaturvedi & Shah, which cleared Reliance’s books from the earliest days. One partner, D.N. Chaturvedi, spent a lot of his working time in the Reliance head office year round. The other name in the partnership was that of a son of a Reliance director until the early 1990s, Jayantilal R. Shah.
When Reliance went through difficult patches, one device to tide over poor profitability was to change the accounting year. Thus in 1978 when the removal of the High Unit Value Scheme forced a switch to the domestic market just as Reliance was going public, the company changed from an October–September year to a January–December year, even though it had moved from a July–June year only two years earlier. In a later time of troubles, 1987 and 1988, Reliance changed its accounting period in two successive years – making for four changes in fifteen years – before settling on the April–March year used by most Indian companies and the government.
• • •
One way to move the market is by weight of money. The best way, of course, is to use someone else’s money. While Dhirubhai can rightly claim to be a father of India’s equity cult, another guru was Manohar J. Pherwani who ran a government-sponsored share trust, Unit Trust of India, for nearly ten years until November 1989. Although it was set up by an act of parliament in 1964, UTI had been quiescent until Pherwani’s arrival. Originally from Sindh, Pherwani was a desperately ambitious man, eager to make his mark and willing to step outside the orthodox to raise subscriptions to UTI funds, for example by sending mobile offices to middle-class neighbourhoods and prosperous rural areas to sign up new investors at their homes. During his chairmanship UTI’s investible funds rose from Rs 4.6 billion (in 1979–80) to Rs 176.5 billion (in 1989–90). Nitish Sen Gupta quotes J.R.D. Tata as remarking at a seminar in Bombay, ‘The capital market that N.K. Sen Gupta did so much to create has become a pocket borough of the UTI chairman, M.J. Pherwani.’3
Dhirubhai and Pherwani became close, and their success fed off each other’s: Reliance’s rising share price meant rising values of UTI units; UTI’s heavy investment in Reliance helped Dhirubhai to keep the price going up.
Dhirubhai also had some funds of his own. Reliance’s cash reserves could be lent to the associated investment companies to buy shares, or deposited in banks as informal additional security against loans to those investment companies to buy shares and debentures. But more often the market was moved by information or sentiment and these funds used to take a profit.
Until 1993, when the newly empowered Securities and Exchange Board of India applied new rules, India had no explicit law against insider trading, although companies were forbidden by company law from buying their own shares. It was accepted as normal, however, for companies to see that their share prices were boosted by friendly brokers and underwriters ahead of issues and often for sensitive information to reach some investors ahead of the public. Share market research was not so much concerned with intelligence about a company’s performance as with which particular stock was being targeted for concerted price ramping and by whom. But Dhirubhai’s year-round intervention in Reliance’s share price, continued by his sons, was extraordinary.
To categorise Dhirubhai as an inside trader, however, does not do justice to the scope of his activities. His willingness to ‘salaam’ anyone and his cultivation of junior staff and newcomers had by the early 1980s created a huge network of friends in politics, government ministries and financial circles. Earlier, goodwill had been cemented by gifts of the famous ‘suit-lengths’ of material. After the float of Reliance in 1977 Dhirubhai was able to allocate parcels of shares or debentures from the ‘promoter’s quota’ of any issue, with a profit virtually guaranteed by the gap between issue and market prices or by the prospect of conversion.
Again, Dhirubhai was not unique in cultivating officials. Many companies had their friends in the bureaucracy. Businessmen liked to get close to power, and the officials looked to post-retirement jobs or opportunities for their children. But, as always with Dhirubhai, it was the degree of cultivation that distinguished his approach to lobbying. His ‘moles’ were not just in the ministries of direct relevance to Reliance – Finance, Industries, Commerce, Textiles, Petroleum – but also in others like the Prime Minister’s Office and Home Affairs where the general powers of the government were wielded. It meant that a signature was barely on a document or file in the Ministry of Finance, for example, before Dhirubhai was informed. The inside trading was not just in the affairs of Reliance Industries Ltd but also in the affairs of the Government of India.
His intervention went beyond information-gathering to the point of influencing or even controlling key bureaucratic appointments and thereby influencing policy or its interpretation. In many parts of India, government jobs have long been allocated by auction, the highest prices being fetched by those in revenue-raising and policing agencies where the opportunities for corruption are greater. In what was long regarded as the most debilitated state administration, that of Bihar, that auction was conducted more or less openly in a café in the main street of the capital, Patna. In New Delhi, police promotions and transfers were brokered for many years by a well-known city journalist.
In Bombay the competition was intense among the handful of senior bureaucrats with financial sector experience for the chairmanships and chief executive positions of the government financial institutions. Dhirubhai was active in the lobbying when the top posts fell vacant in the banks, insurance companies and statutory authorities. And as one old acquaintance noted, Dhirubhai would make a point of telephoning all candidates and assuring each one of his support. Even if it were not really decisive, the winner might be left thinking he owed his new job to Dhirubhai’s backing.
Dhirubhai’s most distinctive touch, however, was in his use of the press. Before him, G.D. Birla
may have been equally master of the Licence Raj and keen to buy public and perhaps divine favour by the building of temples and colleges, but Birla disliked the press and never cared to mix with journalists – even though his family owned the Hindustan Times, one of India’s strongest English-language newspapers.
Centuries of shielding their wealth from over-extended maharajas and nawabs, or from a hungry populace, had made India’s merchants wary of ostentation and careful not to be seen to be overstepping their place in the social hierarchy. In more recent times, the Licence Raj had unleashed packs of inspectors against private wealth, and businessmen had become accustomed to being lectured by politicians and officials about the superiority of economic planning and directed investment.
Dhirubhai shared a certain contempt for the journalist. ‘Throw some scraps to the street-dogs and crows before you feed yourself,’ a family friend remembers him enjoining his sons Mukesh and Anil in the early days at Bhuleshwar. But he recognised how powerful the press could be in moulding the thinking of the public and the politicians.
The huge advertising expenditure of Reliance gave him an automatic hold over many of the less established newspapers and magazines. By the early 1980s the new technology of computerised composition and phototypesetting had led to an explosion of publishing in India, particularly in regional languages where it overcame the technical problems of complex scripts in an economical way. Gujarat was no exception to this. Advertising from Reliance was an important source of revenue for the Gujarati publications in Gujarat itself, Bombay and overseas.
Dhirubhai used his clout. The Gujarati columnist Kanti Bhatt remembered being called upon for help by a newspaper editor who had offended Reliance by printing a hostile paragraph, apparently fed by a rival Marwari-owned company. Reliance had immediately cancelled all advertisements. When he met Dhirubhai, Bhatt remembers him being furious, even throwing a telephone at one point. ‘Mr Ambani called in his advertising manager and said: “Show me our advertising plans.” Then he said to him: “Take out this particular newspaper.” It meant a loss of Rs 600 000 a year for that newspaper.’ After this charade, Bhatt went back to the editor and told him the message was that nothing could be written against Reliance if he wanted the ads. ‘The next issue was damage control and a very long and favourable article was written,’ Bhatt said. Advertising was restored. Later Bhatt was called in by Dhirubhai himself to find out why a Gujarati publication in Britain had suddenly begun printing a series of articles critical of Reliance. After talking to the publisher, Bhatt reported back: ‘Sir, it is a plea for advertising.’ The plea was answered and the articles stopped. ‘You could multiply these examples by a million,’ Bhatt said.
Mahabharata in Polyester Page 9
