Hyderabad: Sakshi, a newspaper launched by Jagan Mohan Reddy, son of Andhra Pradesh chief minister Y.S. Rajasekhara Reddy, claims it has become the largest circulated Telugu language paper, but it is making news for all the wrong reasons with a rival of Reddy Sr alleging that Reddy Jr leveraged his father’s position to raise money from industrialists in a political favours-for-equity quid pro quo.
Sakshi, or witness, launc-hed on 23 March, claims a circulation of 1.17 million copies.
The allegations are being made by Nara Chandrababu Naidu, leader of the Telugu Desam Party and a former chief minister of the state. Naidu’s party lost to Reddy Sr’s Congress in the 2004 assembly elections.
Naidu claims that Jagan Reddy, chairman, Jagati Publications Pvt. Ltd which owns Sakshi, raised money from business houses such as India Cements, Lanco, Ramky Group Aurobindo Pharma Ltd, Matrix Laboratories Ltd, Hetero Drugs Ltd, Karvy group, Pioneer Infrastructure and Tanla Solutions Ltd. He says that in return for their investments in Jagati, these businesses have been provided mining leases and government land at throwaway prices.
Most of the business houses involved say that the investments have been made by people close to or related to the promoters in their individual capacity. And Jagan Reddy refutes the allegations made by Naidu, and says investors were attracted to Jagati because of the opportunity it presented.
Jagati has a paid-up equity capital base of 81.6 million shares of which 73.5 million were allotted at Rs10 a share and the remainder at Rs350 a share. Carmel Asia Holdings Pvt. Ltd, owned by Jagan Reddy, was allotted 50 million shares and Gilchrist Investments Pvt. Ltd, owned by Nimmagadda Prasad of Matrix Laboratories Ltd, 23.5 million shares, both at Rs10 a share. The remaining shares were allotted to 19 corporate entities at Rs350 a share. Of these, 833,000 shares were allotted to Gilchrist.
TDP chief Chandrababu Naidu has alleged that Jagan Mohan Reddy, son of Andhra Pradesh chief minister Y.S.R. Reddy raised money for his newspaper Sakshi from business houses, which in turn, were provided mining leases and government land at throwaway prices . (PTI / Mint/ Bloomberg)
The investments were made even before the company started operations.
This by itself isn’t either against the law or unusual. Most companies allot shares to people other than their promoters at a significant premium. Nor is it unusual for a new company in a growing industry to be able to sell shares at a premium.
However, Naidu alleges that in return for acquiring shares at a premium, the companies have been showered with favours from the state government, including allocation of hundreds of acres of land across the state for special economic zones and other projects at a nominal cost.
“The chief minister has grossly misused power by favouring these companies in various forms and arm-twisted them into investing in Sakshi,” Naidu says. He adds that India Cements received a limestone mining lease and the Ramky group, 19 acres of prime land near Gachibouli at a nominal cost of Rs1 crore per acre, while the prevailing market rate is Rs22 crore per acre. India Cements has invested Rs34.02 crore in Jagati, while Eres Projects Pvt. Ltd, part of the Ramky group, has invested Rs7.77 crore in Sakshi, Naidu says.
Similarly, Naidu adds, the Lanco group received land on the outskirts of Hyderabad to develop its Lanco Hills project. He says promoters of pharmaceutical companies such as Hetero Drugs Ltd and Aurobindo Pharma Ltd invested in Jagati in return for land allocations for their pharma special economic zones near Jadcharla in Mahabubnagar district.
Jagan Reddy says that all high-profile investors who have picked up stakes in his venture were purely attracted by the business opportunity that the media industry offered.
Meanwhile, some of the business groups are seeking to distance their companies from the investments.
Lagadapati Madhusudhan Rao, chairman of the Lanco Group, says his group did not invest in Sakshi. “It is my younger brother, Sridhar, a film producer and a close friend and batchmate of Jagan in the US during his university days, who has invested. And Lanco did not get any favours from the state government in land allocation for Lanco Hills project,” he adds. Lagadapati Sridhar says he invested in the venture since it is a synergetic investment because he has a presence in the media business as a producer of films and television serials.
Jagan Reddy further claims that Lanco got the land through a transparent open bidding process, where a number of leading real estate and infrastructure firms spread across the country participated. He adds that the process of land allocation to the Ramky group at Gachibouli started during Naidu’s regime. “During Naidu’s regime, the Ramky group was allotted 2,218 acres of land near Visakhapatnam for setting up Pharma City. On this basis, Naidu should tell us how many crores of rupees Ramky paid him.”
“India Cements obtained a benefit of Rs150 crore in the form of exemption in sales tax during Naidu’s rule. Can anyone believe that India Cements, which is one of the largest cement manufacturers in the country, would invest Rs34 crore in Sakshi just for limestone leases?” Jagan Reddy asks.
The Ramky group’s chairman, Ayodhya Rami Reddy, says he did not receive any favours from the government. “Ramky did not invest in Sakshi. It is my younger brother, an active Congress politician, who has invested in his personal capacity,” he adds.
India Cements’ vice-chairman and managing director, N. Srinivasan, could not be reached for comment.
P.V. Ramaprasad Reddy, the chairman of Aurobindo Pharma, says: “Our company did not invest in Sakshi. It is a couple of our family members who have invested in their personal capacity purely as an investment opportunity.”
Return on investment
Jagan Reddy says Chandrababu Naidu, unable to face “my father politically, has been levelling baseless allegations against me”. He adds that companies that have invested in Jagati were keen to do so because of the business opportunity in Telugu media and the high price-earning (P-E) multiples that media stocks enjoy in the stock market. A high P-E multiple is an indication of strong future growth potential.
“How can a privately held company go in for private placement of its stock at Rs350 a share even before commencing commercial operations?” counters Naidu.
Jagan says Jagati was valued a few months back by Deloitte, a leading global audit and consulting firm at around Rs3,000 crore on the assumption “that we would be achieving a circulation figure of 12 lakh copies a day.”
“I could convince India Cements’ Srinivasan and Nimmagadda Prasad of Matrix Laboratories, who is already having (some) exposure to electronic media industry in the form of investments in Maa TV, to invest in my company. I could also convince P.V. Prasad, one of the promoters of Karvy Consultants group, a leading player in the Indian securities market.”
Sakshi says it plans to sell shares to the public in the next three years to provide an exit route to investors. Jagan Reddy claims more investors are keen to buy a stake in Jagati and adds that he is open to placing more equity with them.
Meanwhile, Sakshi has set itself the short-term goal of emerging the largest circulated daily from south India in the next six-eight months, ahead of the Malayala Manorama which claims a circulation of 1.55 million copies a day.