In Reliance Power’s Red Herring Prospectus, page 25 of the PDF, there’s a phrase worth watching:
The [Reliance Power] trademark, name and logo do not belong to us. They have been licensed to us under a brand license agreement with ADAV. We are required to pay to ADAV up to Rs. 800 million for these rights. The timing and amount of the payment (subject to the Rs. 800 million limit) will be determined in ADAV’s sole discretion. As of the date of this Red Herring Prospectus, we have not paid any amounts as royalty for the use of the trademark and logo. This agreement can be terminated by ADAV upon the occurrence of certain events such as any breach by us of the terms of this agreement or any applicable law, regulation or industry standard or any
change in control of our company.If the license is revoked, we may no longer be able to use the [Reliance Power] trademark, name or logo in connection with our business and, consequently, we may be unable to capitalize on our brand recognition.
So Anil Dhirubhai Ambani’s group gets 80 cr. for Reliance Power’s use of its own logo. And they can demand it anytime they like. I guess such things are commonplace like HLL paying Unilever for international brand royalty and GBN not even owning its own web site and so on, but it still seems to me as funny money. Just label it something and suddenly shareholders money goes into a private pocket.
For getting their shares for Rs. 10 each (some as late as 2007) and making the general public pay Rs. 450 for them, one would think ADAG would say “Go use the logo for free”, but I guess that’s not how it works. Such is life.
Disclosure: I own Reliance Energy shares. I won’t apply for the Reliance Power IPO, but may decide to trade it after it’s listed. More information on this IPO coming later.
