The Polyester Prince (13 page)

Dhirubbai worked in an expensive office in Bombay’s Nariman Point business district.

He drove around town in a Cadillac (augmented with a gold-coloured Mercedes by 1985). 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 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 [at the Taj Mahal Hotel], have a drink, watch everybody, then leave.’

The sense of exclusion may have been what drove him onwards. It also lent an edge to his public image, turning him, too, into an anti-hero. Those who followed Dhirubhai in the stockmarket were not just part of the Reliance family but members of an unspoken rebellion.

This was the public face of Dhirubhai Ambani. Known to a small circle of insiders was a different face. Shadowing the industrial and marketingactivity, 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 quickly transform debt into equity, Dhirubhai seemed to have avoided the borrowing trap that eventually caught up with so many other stars of the global sharernarket 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 case 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, though these share parcels usually come with the stipulation not to sell for two years.’

The business chronicler Gita Piramal also noted how central was the share price: Arnbani 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 sharcholding … At the time, Ambani didn’t realise that he had mounted a treadmill from which he would never be able to step off. Over the next few years, this treadmill sped ever faster, constantly threatening to whirl out of control. In order to retain the public’s support, Dhirubhai had to ensure that the price of Reliance shares kept appreciating, month after month, year after year. As long as he kept moving, money poured in.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 put 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 sharcholding, spread between scores of investment and trading companies.

This meant that Dhirubhai really was on a spiral 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 juggle money between Reliance, associated private companies, banks and the markets were 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 which often had their registered office, but not necessarily a nameplate, in the same address as one or other of the Reliance offices around Bombay orahmedabad, and whose activities were put down as ‘trading and investment’. For example, Hemal Holding & Trading Pvt Ltd had as directors the old Reliance Commercial Corp stalwarts Narottambhai Doshi and Manubhai Sheth, as well as Vinod Ambani. Victor Investments & Trading Pvt Ltd was controlled by members of the Meswani family.

Jagadanand Investment & Trading had Choksi and one Bhanuchandra Patel as directors.

Many of these companies were subsidiaries of a company called Mac Investment Ltd, incorporated in September 1974 and with its registered office in the Syndicate Bank headquarters in Manipal. Dhirubhai and his extended family, plus in-laws and old friends like Rathibhal Muchhala, were included in Mac Investment’s top shareholders in an annual return at the end of 1983.

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 Sabasra 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, Nariman Point, or wherever else Dhirubhai happened to be, the essential plumbing was at the share registry and transfer agency for Reliance, handling 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 has 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 is 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 15 years, before settling on the April-March year used by most Indian companies.

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 important guru was Manohar J. Pherwani, chairman of the Unit Trust of India for nearly ten years until November 1989. Though it was set up by an act of parliament as far back as 1964, the
UTI
had been quiescent until Pherwani’s arrival.

Originally from Sindh (now in Pakistan), 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 around middle-class neighbourhoods and prosperous rural areas to sign up new investors at their homes. During his chairmanship the UTI’s investable 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 that ‘the capital market that N. K. Sengupta 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 keep the price going up.

Dhirubhai did have some funds himself. 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, though 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. Sharemarket research was not so much concerned with intelligence about a company’s performance as about which particular stock was being targeted for concerted price ramping and by whom. But Dhirubhai’s year-round intervention in Reliance’s share price was, and remains, highly unusual.

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. His ‘moles’ were not just in the ministries of direct relevance to Reliance-Finance, Industries, Commerce, Textiles, Petrolcurn-but 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 in the affairs of the Government of India.

The 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 is regarded as the most debilitated state administration, that of Bihar, the auction is conducted more or less openly in a cafe in the main street of the capital Patna. In New Delhi, police promotions and transfers are brokered 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 ne Hindustan Times, one of India’s strongest English-language newspapers.

Centuries of shielding their wealth from over-extended maharajas and nawahs, 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 learned to be 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 spend 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 photo-typesetting 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.