Report questions RCom's accounting; co sees 'ulterior' motives
New Delhi: Reliance Communications' stock fell sharply Wednesday after a Canadian research firm raised questions about its accounting and governance practices, but the company hit back saying it was a malafide report being disseminated with "ulterior and dishonest motives".
While the report from Canada-based firm alleged that RCom had 'whimsical' accounting policies and its governance and risk-management practices were 'sub-optimal', the company reacted strongly saying, "Veritas report lacks any credibility and is mala fide in intent and approach."
Asserting that RCom is full-compliant with all applicable accounting policy standards, governance and risk management norms, a company spokesperson said that "report is is full of factual inaccuracies, and baseless allegations masquerading as research."
RCom also accused that the "orchestrated manner of dissemination of an 'analyst' report in the media reveals the underlying ulterior and dishonest motives."
A "delayed release" of the report dated June 8, 2012 mysteriously reached the terminals of brokers and institutional investors this morning, immediately leading to a sharp plunge of about 9 percent in RCom's share price.
After hitting a record low of Rs 60 a piece on the BSE, the RCOM shares recovered some ground and were trading 4.7 percent down at Rs 62.10 at 1430 hours.
Veritas report said that RCom's core business was worth Rs 15 per share, suggesting a 77 percent downslide from current levels.
In its reaction, RCom raised questions about the past actions of Veritas, which has previously also released some very negative reports on Indian companies, including on RCom itself, as also on the entire Reliance group, Kingfisher Airlines and DLF.
"In line with its past actions, Veritas is working systematically to destroy confidence in Indian capital markets through distorted and sensationalist reports," RCom said.
"RCom is fully compliant with all applicable accounting policies and standards; adheres to all prescribed governance norms; and follows appropriate risk management policies consistent with the long term maturities of up to 10 years for its foreign currency debt."
Veritas in its report said: "We believe that the Company?s accounting policies are whimsical and do not provide a clear picture of the underlying operating and business trends. We neither believe in the reported book equity of the Company nor in its reported fixed asset base.
"Given significant exposure to un-hedged foreign currency denominated loans, we find the risk management and governance practices of the Company sub-optimal," it added.