The annual general meetings (AGM) of Anil Ambani Group companies on Monday saw some shareholders worrying about the sharp drop in share prices. The conjunction of various factors, said the group’s chairman Anil Ambani, caused “collateral damage”.
Ambani said the group’s companies have faced challenges over the past six months due to a “combination of factors, be it the crisis in the financial services sector, the stock irrationality of auditors and rating agencies or the now-recognized temporary downturn” in the economy. “These events, aided and mitigated by reckless selling and the spreading of rumors by interested parties, (have) affected the psychology of the general public, especially shareholders like you,” he said.
A shareholder of Reliance Power (RPower) questioned the company’s board about the decline in promoter shareholding, “default” ratings and significant share price erosion. At the end of Monday’s trade, the stock closed down eight percent at Rs 2.2. “We could even consider a class action, if the cases are not brought to order,” he said. Year-to-date, RPower shares are down 91.7%.
RCap to get out of loans
The AGM line-up began with Reliance Capital (RCap), where Ambani told shareholders that the group’s financial services arm would no longer be in the lending business. Instead, it would focus on life and general insurance businesses to create long-term value. “Reliance Commercial Finance (RCF) and Reliance Home Finance (RHF) are working closely with the lenders to finalize the (loan fee) resolution plan, which is expected to be completed by December,” said Anil Ambani. RCap will only be a financial shareholder of these two companies. The move will effectively reduce debt by Rs 25,000 crore, Ambani said.
Ravindra Sudhalkar, chief executive officer (CEO) of RHF, said the company was seeking to enter the resolution process under an intercreditor agreement (ICA); he expected more lenders to sign him.
Listener Notes on RHF
The firm also disclosed some of the opinions of newly appointed auditors Dhiraj & Dheeraj and the directors’ responses to them. While stating that there had been no breach of Section 143(12) of the Companies Act (on reporting fraud), the auditors had opinions on the group’s exposure: “We draw attention to…the loan advanced under the “general purpose business loan”. ‘ proceeds with significant discrepancies for certain legal entities, including group companies, and the outstanding amount as of March 31 totaling Rs 7,849.9 crore, secured by a charge on borrowers’ current assets. Also: “The majority of the company’s borrowers have undertaken subsequent lending transactions and the end use of borrowings from the company, including borrowings by or for the repayment of financial obligations to certain of the group companies.”
To this, the directors’ response was: “All of the company’s loan transactions are in the ordinary course of business, the terms of which are arm’s length, and these do not constitute related party transactions.”
They also said the company was growing the housing loan portfolio, after auditors raised concerns about RHF continuing as a housing finance company due to a “significant change in the ‘the company’s main business from housing finance to non-real estate finance, which account for more than 50% of the total loan portfolio.’
Change of power
Ambani said RPower’s foray into Bangladesh was likely to significantly help the company in its debt reduction plan. “RPower is now focusing on the development of Phase II of the 1,500Mw (project) in Bangladesh, in accordance with the signed Memorandum of Understanding for the development of 3,000Mw in gas-based projects. With these developments, RPower will be able to fully repay US EXIM debt of Rs 2,400 crore.
These assets in Samalkot, Andhra Pradesh have been blocked due to lack of gas availability. RPower is also undertaking capital expenditure of Rs 4,000 crore to install flue gas desulphurization in its coal-fired power plants.
Winning bid in Infra
On Reliance Infrastructure (RInfra), Ambani said that over the past few years the company has gone from one with more than 15 different businesses to focusing on a few, such as power distribution, transport (highways, metro and airports), engineering and construction (E&C), and the defense sector. He informed shareholders that RInfra had won the bid for the Rs 7,000 crore Versova-Bandra Sea Link project in Mumbai awarded by the Maharashtra State Road Development Corporation (MDRDC). The project would be in build, operate and transfer (BOT) mode, protecting it from any traffic or toll risk. He said he expected the project zero date (from which implementation starts) to be announced soon, after the Maharashtra state elections.
Ambani said the company sees huge opportunities in the defense segment, with 98% of India’s needs being met through imports. “India’s defense budget exceeds 3.18 trillion rupees, of which 1.1 trillion rupees is capital expenditure for the purchase of new weapons, platforms and military hardware,” he said. he declares.
On the progress made in debt reduction, Ambani said the group had repaid Rs 35,000 crore in the 14 months to May 2019 and will pay another Rs 15,000 crore by March 2020 Arbitration issues, pending for five to ten years.