 "Ramoji Rao's shrinking empire")
In February 2007, N Rangachari, the adjudicator appointed to conduct the inquiry into Margadarsi, summarised his findings in a report. It said that the company, "as it stands today, will not be able to refund the public deposits in full because of its legal inability to raise any more deposits." The company had shown assets of Rs 1,316 crore, but was in debt for over twice that amount, to the tune of Rs 2,685 crore. Margadarsi could only repay every creditor 49 paise to a rupee. Rao refuted the report vehemently. Margadarsi could fulfil all its financial commitments, he said, by divesting itself of 26 per cent of its holdings in another company, Ushodaya Enterprises Limited. That money, he declared, would come from one of the world's largest private equity firms, the Blackstone Group. Blackstone had valued Ushodaya at a whopping Rs 4,770 crore; in an interview to The Hindu, Rao said that the private equity firm was ready to invest Rs 1,217 crore in his company. Had the deal gone through, it would have been the largest private equity investment in Indian media to date.
But Vundavalli [YSR's trusted lieutenant, the member of parliament Vundavalli Arun Kumar] wrote to [Finance Minister P] Chidambaram again in March 2007, as well as to the prime minister Manmohan Singh, saying the clearance should be given only if the company was going to utilise "the entire money first for repayment of the depositors." This prompted the Foreign Investment Promotion Board to take up the matter, and the issue of a clearance, which usually takes four weeks, dragged on for four months. In April 2007, hoping to move things along, Blackstone reevaluated the deal, and came up with a reduced offer for a roughly 14-per cent stake in Ushodaya, for a sum of Rs 590 crore. Vundavalli raised fresh allegations in another letter in August 2007, prompting another round of inquiries. By the time all the concerned ministries had cleared the deal, in August 2008, the Blackstone-Ramoji agreement had already been dead for seven months - it had lapsed on 31 January that year.
Just before the deal lapsed, in early January, a Mint report summing up its tortured history said the matter had raised questions of whether "India's economic policy can be held hostage by just one member of parliament, albeit from the ruling Congress party, who has single-handedly delayed a global transaction through an incessant letter-writing campaign that raised several claims, including many tangential to the issue, such as fears of Chinese government money allegedly flowing into India through Blackstone." Mint had previously reported that luminaries such as the industrialist Ratan Tata had directly raised the issue of the delay with Chidambaram more than once. But YSR used his weight in the Congress party, and the goodwill he shared with the party's president Sonia Gandhi, to block the deal. It seemed like the end of the road for the embattled Rao.
Then, seven days later, a white knight emerged: a Mumbai-based investment banker, Nimesh Kampani, who had never invested in the media industry before, created an entity called Equator Trading Enterprises private Limited, which came up with an investment for a hefty stake in Ushodaya Enterprises. The deal valued Ushodaya at Rs 6,780 crore - at least a third over the original Blackstone valuation. Eenadu, it appeared, had been saved.
I spoke to a stockbroker in Mumbai who offered an explanation of the relationships that made the deal between Rao and Kampani possible. "Margadarsi used to be one of the biggest players of 'badla finance' in Bombay stock Exchange in the 1980s," he said. "Badla" is a kind of carry-forward transaction, now banned in indian stockbroking. "They had a corpus to invest and it brought high returns in a very short span of time. Ramoji Rao was also the big daddy of all the businessmen who came to Bombay from Hyderabad, like GMR and GVK" - Grandhi Mallikarjuna Rao and Gunapati Venkata Krishna Reddy, Telugu entrepreneurs who lent their initials to the infrastructure conglomerates which bear their names. Ramoji Rao, the stockbroker said, "had lots of friends and a lot of influence in Bombay." Kampani's intervention meant that Rao was now home safe on the investment front. But he now had to reckon with YSR's tactics on his home turf: the state government responded to the Kampani buyout by issuing a non-bailable warrant for Kampani's arrest in relation to an old case. Kampani had earlier been an independent director on the board of a company which had defaulted on depositors' payments after he left. The banker was in Dubai on business when the warrant was issued, and he stayed put, waiting for anticipatory bail, which was never granted. Kampani only returned to india after the look-out notice was stayed, following YSR's death in a helicopter crash in September 2009. But the biggest trick up his opponents' sleeve turned out to be something that struck at the very heart of Rao's endeavours.
For the first time in decades, Eenadu had competition. In March 2008, YSR's son YS Jagan Mohan Reddy launched his own newspaper - Sakshi, or "Witness" - with 23 editions across Andhra Pradesh. Sakshi offered subscriptions at Rs 60 per month, making it the cheapest newspaper in the state. Reddy also immediately declared a print run of 12.71 lakh, which surpassed Eenadu's 12 lakh. Suddenly, the morning newspaper had become the primary site of political contest in Andhra Pradesh.
In November 2009, Sakshi broke a sensational story alleging that Mukesh Ambani, the head of the conglomerate Reliance Industries Limited, had invested in Rao's companies through Kampani and Vinay Chhajlani. According to the news report, within a span of 37 days between December 2007 and January 2008, six shell companies were floated using three addresses at Sriram Mills Compound in Mumbai, which is the official address of RIL. Reliance, alleged Sakshi, diverted its shareholders' money through the shell companies into Rao's Ushodaya. Although Ushodaya showed losses of Rs 59 crore for the financial year 2007-08, Kampani bought each share worth Rs 100 for Rs 5,28,630. With the help of information mined from the Registrar of Companies, the Sakshi business bureau was able to trace the flow of funds from Reliance to Ushodaya. (A senior Sakshi journalist alleged that the tip-off about RIL's surrogate investment had come from the camp of Anil Ambani, who was engaged in a corporate war with his brother Mukesh.)
The Mumbai stockbroker, who was closely associated with one of Rao's allies until recently, explained: "We all thought Nimeshbhai was investing his own money with the blessings of Mukesh. But we didn't know he was investing on behalf of Mukesh." There was little response in the national media to the Sakshi scoop, although the buyout signalled a significant expansion into the media industry for RIL. But neither Rao nor RIL responded to the story. Indeed, the whole deal seemed to have flown under the radar, until Mukesh Ambani's 2012 deal with the national media conglomerate Network 18 cast the company's relationship with Rao's group in a new light.
By 2011, Andhra Pradesh was in political upheaval once again. Jagan Reddy, who had launched his breakaway YSR Congress party, challenged Rao and [N Chandrababu] Naidu head on. Eenadu's front pages attacked Reddy with allegations of corruption. Over several stories, the paper accused him of soliciting investments in his own businesses - especially Sakshi - in return for political favours granted when YSR was in power. In March 2012, the Central Bureau of Investigation filed the first of several chargesheets against Jagan Reddy, as part of its investigations into these investments, and Reddy was arrested under the Prevention of Corruption Act in May that year.
But a reversal of fortunes was awaiting Rao as well. In October 2011, Reddy's mother, YS Vijayamma, had filed a writ petition in the Andhra Pradesh High Court, complaining about Naidu's disproportionate assets. This document prominently raked up the RIL investment in Ushodaya, questioning Rao and Naidu's closeness. The petition claimed that the investment was nothing less than a pay-off from RIL to Naidu for an act of chief ministerial generosity back in 2000, choosing "to turn an obliging blind eye" to the company's discovery of huge natural gas reserves in the Krishna-Godavari Basin. "For allowing the state's KG basin claim to be brushed under the carpet," the petition went on to assert, "the Reliance group facilitated the payout of Ramoji Rao's debts to his depositors. This was carried out through known associates and friends of Mukesh Ambani."
"We were probably wrong in linking K-G basin gas to Reliance's investment in ETV," a Sakshi journalist who wrote and researched stories about the deal told me. "It now seems like a genuine investment." However, the petition had an extraordinary corollary effect. It alleged, like the Sakshi report had, that Kampani's Equator Trading Enterprises Private Limited had come up with an investment of Rs 1,454 crore for a 22.7 per cent stake in Ushodaya Enterprises. It further asserted that in 2009, the CEO of the Hindi daily Nai Dunia, Vinay Chhajlani, came up with another investment, of Rs 1,150 crore for a 17.1 percent stake, via an Indore-based company called Anu Trading. And although Reliance was not listed as a respondent in the petition, it impleaded itself and admitted for the first time that it had indeed invested Rs 2,600 crore in Ushodaya Enterprises, through Kampani and Chhajlani.
Speculation about why RIL had chosen to invest in a powerful but provincial media house generally centred on Rao's proximity to power, and RIL's desire to control opinion in a region where it had significant business interests. It was only in January 2012 that another motive for the buy-out became public, when RIL issued its first press release announcing a hefty investment in TV18 Broadcast Limited, which runs the television channels CNN-IBN and IBN- Live, among others, through a shell company called the Independent Media Trust, which would help the debt-ridden Network 18 group, which owned TV18, with funds to pick up that stake.
The multilayered deal was structured in such a way that TV18 shelled out Rs 2,100 crore to buy out ETV's Hindi news channels in Uttar Pradesh, Madhya Pradesh, Rajasthan and Bihar, as well as ETV Urdu; a 50-per cent stake in ETV's Marathi, Kannada, Bengali, Gujarati and Odia channels, and a 24.5-per cent stake in ETV Entertainment and the news channel ETV2. RIL would have exclusive rights to content from the two media houses to use when its 4G broadband services finally took off. According to the terms of the deal, after February 2015, ETV News will be rebranded "News 18." The "ETV" brand will be retained by the Eenadu group, which now owns the newspaper, and part of the two ETV Telugu channels. They remain big players in Andhra Pradesh. It was a market that Rao had built and driven forward ever since he entered the business as a young man in his thirties. It expands every year-but Rao's empire, in turn, has shrunk.
This is an extract reprinted with permission from the media special issue of The Caravan, December 2014 © Delhi Press
But Vundavalli [YSR's trusted lieutenant, the member of parliament Vundavalli Arun Kumar] wrote to [Finance Minister P] Chidambaram again in March 2007, as well as to the prime minister Manmohan Singh, saying the clearance should be given only if the company was going to utilise "the entire money first for repayment of the depositors." This prompted the Foreign Investment Promotion Board to take up the matter, and the issue of a clearance, which usually takes four weeks, dragged on for four months. In April 2007, hoping to move things along, Blackstone reevaluated the deal, and came up with a reduced offer for a roughly 14-per cent stake in Ushodaya, for a sum of Rs 590 crore. Vundavalli raised fresh allegations in another letter in August 2007, prompting another round of inquiries. By the time all the concerned ministries had cleared the deal, in August 2008, the Blackstone-Ramoji agreement had already been dead for seven months - it had lapsed on 31 January that year.
Just before the deal lapsed, in early January, a Mint report summing up its tortured history said the matter had raised questions of whether "India's economic policy can be held hostage by just one member of parliament, albeit from the ruling Congress party, who has single-handedly delayed a global transaction through an incessant letter-writing campaign that raised several claims, including many tangential to the issue, such as fears of Chinese government money allegedly flowing into India through Blackstone." Mint had previously reported that luminaries such as the industrialist Ratan Tata had directly raised the issue of the delay with Chidambaram more than once. But YSR used his weight in the Congress party, and the goodwill he shared with the party's president Sonia Gandhi, to block the deal. It seemed like the end of the road for the embattled Rao.
Then, seven days later, a white knight emerged: a Mumbai-based investment banker, Nimesh Kampani, who had never invested in the media industry before, created an entity called Equator Trading Enterprises private Limited, which came up with an investment for a hefty stake in Ushodaya Enterprises. The deal valued Ushodaya at Rs 6,780 crore - at least a third over the original Blackstone valuation. Eenadu, it appeared, had been saved.
I spoke to a stockbroker in Mumbai who offered an explanation of the relationships that made the deal between Rao and Kampani possible. "Margadarsi used to be one of the biggest players of 'badla finance' in Bombay stock Exchange in the 1980s," he said. "Badla" is a kind of carry-forward transaction, now banned in indian stockbroking. "They had a corpus to invest and it brought high returns in a very short span of time. Ramoji Rao was also the big daddy of all the businessmen who came to Bombay from Hyderabad, like GMR and GVK" - Grandhi Mallikarjuna Rao and Gunapati Venkata Krishna Reddy, Telugu entrepreneurs who lent their initials to the infrastructure conglomerates which bear their names. Ramoji Rao, the stockbroker said, "had lots of friends and a lot of influence in Bombay." Kampani's intervention meant that Rao was now home safe on the investment front. But he now had to reckon with YSR's tactics on his home turf: the state government responded to the Kampani buyout by issuing a non-bailable warrant for Kampani's arrest in relation to an old case. Kampani had earlier been an independent director on the board of a company which had defaulted on depositors' payments after he left. The banker was in Dubai on business when the warrant was issued, and he stayed put, waiting for anticipatory bail, which was never granted. Kampani only returned to india after the look-out notice was stayed, following YSR's death in a helicopter crash in September 2009. But the biggest trick up his opponents' sleeve turned out to be something that struck at the very heart of Rao's endeavours.
For the first time in decades, Eenadu had competition. In March 2008, YSR's son YS Jagan Mohan Reddy launched his own newspaper - Sakshi, or "Witness" - with 23 editions across Andhra Pradesh. Sakshi offered subscriptions at Rs 60 per month, making it the cheapest newspaper in the state. Reddy also immediately declared a print run of 12.71 lakh, which surpassed Eenadu's 12 lakh. Suddenly, the morning newspaper had become the primary site of political contest in Andhra Pradesh.
In November 2009, Sakshi broke a sensational story alleging that Mukesh Ambani, the head of the conglomerate Reliance Industries Limited, had invested in Rao's companies through Kampani and Vinay Chhajlani. According to the news report, within a span of 37 days between December 2007 and January 2008, six shell companies were floated using three addresses at Sriram Mills Compound in Mumbai, which is the official address of RIL. Reliance, alleged Sakshi, diverted its shareholders' money through the shell companies into Rao's Ushodaya. Although Ushodaya showed losses of Rs 59 crore for the financial year 2007-08, Kampani bought each share worth Rs 100 for Rs 5,28,630. With the help of information mined from the Registrar of Companies, the Sakshi business bureau was able to trace the flow of funds from Reliance to Ushodaya. (A senior Sakshi journalist alleged that the tip-off about RIL's surrogate investment had come from the camp of Anil Ambani, who was engaged in a corporate war with his brother Mukesh.)
The Mumbai stockbroker, who was closely associated with one of Rao's allies until recently, explained: "We all thought Nimeshbhai was investing his own money with the blessings of Mukesh. But we didn't know he was investing on behalf of Mukesh." There was little response in the national media to the Sakshi scoop, although the buyout signalled a significant expansion into the media industry for RIL. But neither Rao nor RIL responded to the story. Indeed, the whole deal seemed to have flown under the radar, until Mukesh Ambani's 2012 deal with the national media conglomerate Network 18 cast the company's relationship with Rao's group in a new light.
By 2011, Andhra Pradesh was in political upheaval once again. Jagan Reddy, who had launched his breakaway YSR Congress party, challenged Rao and [N Chandrababu] Naidu head on. Eenadu's front pages attacked Reddy with allegations of corruption. Over several stories, the paper accused him of soliciting investments in his own businesses - especially Sakshi - in return for political favours granted when YSR was in power. In March 2012, the Central Bureau of Investigation filed the first of several chargesheets against Jagan Reddy, as part of its investigations into these investments, and Reddy was arrested under the Prevention of Corruption Act in May that year.
But a reversal of fortunes was awaiting Rao as well. In October 2011, Reddy's mother, YS Vijayamma, had filed a writ petition in the Andhra Pradesh High Court, complaining about Naidu's disproportionate assets. This document prominently raked up the RIL investment in Ushodaya, questioning Rao and Naidu's closeness. The petition claimed that the investment was nothing less than a pay-off from RIL to Naidu for an act of chief ministerial generosity back in 2000, choosing "to turn an obliging blind eye" to the company's discovery of huge natural gas reserves in the Krishna-Godavari Basin. "For allowing the state's KG basin claim to be brushed under the carpet," the petition went on to assert, "the Reliance group facilitated the payout of Ramoji Rao's debts to his depositors. This was carried out through known associates and friends of Mukesh Ambani."
"We were probably wrong in linking K-G basin gas to Reliance's investment in ETV," a Sakshi journalist who wrote and researched stories about the deal told me. "It now seems like a genuine investment." However, the petition had an extraordinary corollary effect. It alleged, like the Sakshi report had, that Kampani's Equator Trading Enterprises Private Limited had come up with an investment of Rs 1,454 crore for a 22.7 per cent stake in Ushodaya Enterprises. It further asserted that in 2009, the CEO of the Hindi daily Nai Dunia, Vinay Chhajlani, came up with another investment, of Rs 1,150 crore for a 17.1 percent stake, via an Indore-based company called Anu Trading. And although Reliance was not listed as a respondent in the petition, it impleaded itself and admitted for the first time that it had indeed invested Rs 2,600 crore in Ushodaya Enterprises, through Kampani and Chhajlani.
Speculation about why RIL had chosen to invest in a powerful but provincial media house generally centred on Rao's proximity to power, and RIL's desire to control opinion in a region where it had significant business interests. It was only in January 2012 that another motive for the buy-out became public, when RIL issued its first press release announcing a hefty investment in TV18 Broadcast Limited, which runs the television channels CNN-IBN and IBN- Live, among others, through a shell company called the Independent Media Trust, which would help the debt-ridden Network 18 group, which owned TV18, with funds to pick up that stake.
The multilayered deal was structured in such a way that TV18 shelled out Rs 2,100 crore to buy out ETV's Hindi news channels in Uttar Pradesh, Madhya Pradesh, Rajasthan and Bihar, as well as ETV Urdu; a 50-per cent stake in ETV's Marathi, Kannada, Bengali, Gujarati and Odia channels, and a 24.5-per cent stake in ETV Entertainment and the news channel ETV2. RIL would have exclusive rights to content from the two media houses to use when its 4G broadband services finally took off. According to the terms of the deal, after February 2015, ETV News will be rebranded "News 18." The "ETV" brand will be retained by the Eenadu group, which now owns the newspaper, and part of the two ETV Telugu channels. They remain big players in Andhra Pradesh. It was a market that Rao had built and driven forward ever since he entered the business as a young man in his thirties. It expands every year-but Rao's empire, in turn, has shrunk.
This is an extract reprinted with permission from the media special issue of The Caravan, December 2014 © Delhi Press