The stock of Reliance Communications (RCom) fell 4.8 per cent today to Rs 154 per share, even as the company defended itself against allegations by the Comptroller and Auditor General (CAG) on its stake in Swan Telecom at the time the latter was awarded 2G licence and spectrum.
RCom hit an intra-day low of Rs 145, falling as much as 10 per cent.
CAG said Reliance ADAG held 10.71 per cent in Swan Telecom, which was its “front company,” and so violated the licence code. It should therefore not have been given a licence at all, said CAG. Under rules, a telecom company cannot take more than 10 per cent in a competing telecom firm in the same circle.
The company refuted the claims and referred to them as “doubts”.
“RCom was a 9.9 per cent equity shareholder in Swan Telecom till December 5, 2007, while Swan was granted LoI on January 10, 2008. We had no shareholding in Swan Telecom at the time of the grant of licence to them or any time thereafter; and did not take any steps to actively pursue its licence application. The issue of licence validity and spectrum priority of Swan Telecom is not relevant for RCom’s operations,” it said in a statement.
“The CAG report is not the trigger point, it is an additional trigger. The RCom stock has already been under pressure due to heavy debt and reduced margins. As of now, why should anyone be in telecom stocks where there are risks of licence cancellations and corporate governance issues? Money can chase much better places,” said Jagannatham Thunguntla, equity head, SMC Capital.
Some stock brokers believe the CAG report will trigger action from other regulatory authorities and the issue may be escalated.
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Others said the company could just have to pay a penalty. But they all agreed that ambiguity might persist for a long time, keeping investors away.
“This is definitely bad news, especially for RCom. It is a serious allegation,” said Harit Shah, research analyst, Angel Broking.
RCom has been trying to raise funds and pay debt through a 26 per cent stake sale and by monetising its tower assets. The search for buyers might get tougher now, said experts.
The markets also gave a thumbs down to companies such as Videocon and Unitech, which have connections with Datacom and Uninor, respectively, both of which have been named in the CAG report for various discrepancies in their licence applications. Videocon fell 2.8 per cent, while Unitech went down by 4.2 per cent.
An analyst who tracks Unitech said the telecom side hammered the stock. “Unless you get clarity on that, investors will avoid the stock. If you put aside these things, the stock is attractive from the real estate angle and we expect 20-25 per cent return on a one-year perspective,” said Param Desai, research analyst, Angel Stock Broking.