The-Polyester-Prince

In October 1977, Reliance had gone public, with a public offer of 2.8 million equity
shares of Rs 10 each at par, taken from the holdings of Dhirubhai and his younger
brother Nathubhai. With its shareholding thus broadened to meet listing
requirements, Reliance was listed on the stock exchanges in Bombay and
Ahmedabad in January 1978.
Thereafter Reliance expanded its equity base through frequent rights and bonus
issues to shareholders, while financial institutions converted 20 per cent of their
loans into equity in September 1979. But it was through the use of convertible
debentures that Dhirubhai made his big splash in the capital markets. Indeed,
Dhirubhai had anticipated Sen Gupta’s policy with the Series I issue of partially
convertible debentures by Reliance in October 1979, raising Rs 70 million.
Reliance was not alone in trying the long disused instrument promoted by Sen
Gupta. The Tata group’s automotive firm Telco raised Rs 230 million with a fully
convertible issue in 1980, followed by the Gujarat Narmada Fertiliser Corp with a Rs
430 million issue. But from late 1980 the issues of partially convertible debentures
came from Reliance in quick succession, raising Rs 108 million in September from its
Series 11 and Rs 240 million from its Series 111 the next year, and Rs 500 million
from Series IV in April 1982. Dhirubhai capped that by obtaining from Sen Gupta
clearance to do what should normally be legally impossible: converting the nonconvertible
portions of the four debenture issues into equity.
By this method, dubbed a ‘brilliant and unconventional move’s by the magazine ‘The
Economic Scene’s in a September 1984 cover story on Dhirubhai-Reliance was able
to chop Rs 735 million off its debt book in 1983, and turn it into comparatively
modest equity of Rs 103 million, while reserves were raised by Rs 632 million.
Instead of an annual interest bill of Rs 96.5 million on debentures, the dividend
burden from the extra equity was only around Rs 36 million. This transmutation
allowed Reliance to continue raising more quasi-debt, with its E Series of partially
convertible debentures in October 1984 which raised another Rs 800 million.
Sen Gupta denies that he was unduly permissive to Reliance, or that he ever
received any benefits from Dhirubhai such as share allotments. ‘In my first
encounter with him I had to say no,’ Sen Gupta recalled. With the third series of
debentures, Dhirubhai had put in a request that the holders be entitled to renounce
rights attached to their implicit share entitlements. Sen Gupta insisted that the
debentures were not shares until converted.
But Reliance was highly persuasive. On another occasion, Sen Gupta rejected the
premium that Reliance was seeking to put on an issue, on the ground that projected
profitability had not been indicated. Without a pro-forma balance sheet for the
current year an extension of results to date-it could not be accepted.
It was 1 pm that day; Sen Gupta was due to fly that evening to Bombay for a
meeting of his seven-member committee on capital issues the next morning.
Obviously it would be impossible to have the paperwork ready for this meeting. He
told Reliance.
Coming out of the arrivals hall of Bombay Airport at 7 pm, Sen Gupta was met by
accountants from Reliance, and handed a copy of the pro-forma balance sheet and
results for each of the seven committee members. ‘I had no option but to take up
the matter at our meeting,’ Sen Gupta said. .