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Mukesh took Macronet route to sweat equity in Infocomm

BS Corporate Bureau in Mumbai | December 22, 2004 08:55 IST

The 12 per cent sweat equity that Reliance Industries' chairman and managing director Mukesh Ambani acquired in Reliance Infocomm in March/April this year resulted from an option given to him nearly four years earlier by an entirely different company, called Macronet Private Limited.

Reliance Infocomm did not exist when the sweat equity option was given; nor did Reliance Industries have any investment in Macronet at the time.

The Reliance 'ownership issue'

Further, the value of the sweat equity option, at the time it was given, was Rs 360,000(12 per cent of Macronet's capital base of Rs 30 lakh). By the time the option was exercised in 2004, this became Rs 50 crore (Rs 500 million) at face value.

The directors of Macronet in July 2000, when the sweat equity option was given to Ambani, were Ajeet Verma (a former Bank of India official who now works for Reliance Energy) and Ashok Jain (an accountant in a Reliance group firm).

Mukesh Ambani joined the board as managing director in July 2000. Around the same time, Manoj Modi, a close associate of Mukesh Ambani, also joined the company as a director.

The two companies involved went through a series of transformations. Macronet was renamed Reliance Infocom (spelt with a single 'm') in November 2000, and then Reliance Communications Infrastructure Ltd (RCIL) in March 2002, by which time it was investing in the hardware backbone for the Reliance telecom venture.

Along the way, Reliance Industries invested over Rs 2,330 crore (Rs 23.3 billion) in RCIL, but Mukesh Ambani never exercised in this firm the stock option that had been given to him in July 2000.

On a separate corporate track, there existed a firm called Reliance Infocomm (with two 'm's), which was merged into another firm called Reliance Information Communications, which was immediately renamed Reliance Infocomm.

Both Reliance Industries and RCIL have invested in Infocomm, which now handles the telecom business. It is this firm, in which the original Macronet (now RCIL) holds the majority stock, which eventually gave Mukesh Ambani his sweat equity.

Asked why Ambani had taken sweat equity in one company when it had been offered to him in another, a senior Reliance group executive said, "The sweat equity arrangement was such that Mukesh Ambani would be offered 12 per cent sweat equity in the company which would run the voice business. Since Reliance Infocomm now runs the voice business, the offering of sweat equity in Infocomm to Mukesh Ambani was in line with the arrangements arrived at between him and Macronet."

Asked whether the existence of Mukesh Ambani's sweat equity option had been disclosed to RIL when it invested first in RCIL and then in Infocomm, the executive said: "Reliance Industries had invested in the Infocomm business three or four months after the sweat equity arrangement was arrived at. Reliance Industries knew about the arrangement from the very beginning of its investment. The allegation that Reliance was kept uninformed about the sweat equity arrangement is baseless."

He also maintained that since Reliance Industries had been informed, no corporate governance norms had been violated.

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Number of User Comments: 5

Sub: What is sweat equity?

For some dumb techy types like me will the author kindly explain what sweat equity means?

Posted by Susmit Sen

Sub: Professionalism in unscrupulous methods?

This group perhaps needs a thorough investigation into all their short cut methods that were unscrupulously followed and implemented to amass wealth within short periods ...

Posted by B.Gautam

Sub: Why so many companies for same purpose?

I think we should have a law that will prevent the same promoter(s) to open more than one company having more or less same business ...

Posted by Achintya Das

Sub: A good case study

This whole saga will make a good case study on business law for a MBA student. MBA_student

Posted by MBA_student

Sub: Good sense seems to prevail

As an admirer of Dhirubhai for the vision and the shrewdness with which he managed the corrupt political and bureaucratic setup to create a world ...

Posted by udydudy


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