Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Stocks

RCOM Shows You What's Wrong With Corporate India: Veritas

Moneylife writes about how RCOM is the "poster child of everything wrong with Corporate India". This is from a Veritas Report by Neeraj Monga and Varun Raj, from Canada.

1. They claim that RCOM promoter holding went from 38% to 63% silently through merger with a group telecom business, but that should be nullified. RIL invested 13, 675 cr. in RCOM, while only 186 cr. was in other management owned companies which were merged in. Therefore more than 82 cr. shares that were issued to the Ambanis should not have been given.

2. They claim RCOM has inflated their books by,

whimsical accounting policychanges, use of “cookie jar accounting” to circumvent the P&L impact ofcash expenses via creative use of unreliable non-cash general reserves,understatement of cash interest expenses via intermingling non-cash foreignexchange gains and losses in some years and excluding those in others, andchanging depreciation policies enabling a one-time boost to earnings, etc.

3. They mention that RCOM’s ESOP trust owns about 33 million shares, while under the ESOP plans there are just 12.8 million shares provided for. SImply put, they allege that RCOM is using the ESOP trust to buy its own shares, which is not usually permissible. Plus, now with the price so low, many of the granted options are likely to expire unvested (so the trust needs no shares to back them).

It’s a long and interesting presentation. It’s not uncommon in India to see companies do this – even the RPOWER mess involved ADAG getting shares in it for a song. But do wait till the company responds.