Anil Ambani's RCap to exit lending business, stay focused on insurance

Anil Ambani group shareholders concerned over significant stock price erosion

The annual general meetings (AGMs) of Anil Ambani group companies on Monday saw some shareholders raising concern on the significant fall in stock prices. The coming together of various factors, said Group Chairman Anil Ambani, had caused “collateral damage”.  

Ambani said group companies have had to face challenges over the past six months due to a “combination of factors, whether it was the crisis in the financial services sector, irrational action by auditors and rating agencies or the now-recognised temporary slowdown” of the economy. “These events, aided and abated by reckless selling and rumour mongering by vested parties, (have) affected the general public psychology, especially shareowners like you,” he stated.

A shareholder in Reliance Power (RPower) questioned the company's board of directors on the fall in promoter shareholding, ‘default’ ratings and significant erosion in share price. At the end of Monday’s trade, the stock closed eight per cent lower at Rs 2.2. “We could even look at a class-action suit, if the affairs are not brought back to order,” he said. In the year-to-date, RPower’s stock is down 91.7 per cent.

RCap to exit lending

The AGM line-up began with Reliance Capital (RCap), where Ambani told shareholders the group’s financial services arm would no longer be in the lending business. Instead, it would focus on the life and general insurance businesses for creating value over the long term. “Reliance Commercial Finance (RCF) and Reliance Home Finance (RHF) are working closely with lenders to finalise the (loan dues) resolution plan, expected to be completed by December,” said Anil Ambani. RCap will only be a financial shareholder in both these companies. The move will effectively reduce debt by Rs 25,000 crore, Ambani said.

Ravindra Sudhalkar, RHF’s chief executive (CEO), said the company was looking to enter the resolution process under an inter-creditor agreement (ICA); it expected more of the lenders to sign it. 

Auditor notes on RHF

The firm also disclosed some of the opinions of newly-appointed auditors Dhiraj & Dheeraj and the directors’ responses on these. While stating there were no violations under Section 143 (12) of  the Companies Act (on reporting of fraud), the auditors had some opinions on the group exposure, “We draw attention to… the loan advanced under the ‘General-Purpose Corporate Loan’ product with significant deviations to certain bodies corporate, including group companies, and the outstanding amount as at March 31 aggregating Rs 7,849.9 crore, secured by charge on current assets of borrowers.” Also: “The majority of the company’s borrowers have undertaken onward lending transactions and end-use of the borrowings from the company, included borrowings by or for repayment of financial obligation to some of the group companies.” 

To this, the directors’ response was: “All lending transactions by the company are in the ordinary course of business, the terms of which are at arms’ length basis, and these do not constitute transactions with related parties.” 

They also said the company was in the process of increasing the housing loan portfolio, after the auditors raised concern on RHF continuing as a housing finance company due to “material shift in primary business of the company from housing finance to non-housing finance, which comprise more than 50 per cent of total loan portfolio”.

Power shift

Ambani said RPower’s foray in Bangladesh was likely to significantly help the company in its debt reduction plan. “RPower’s focus now is on the development of Phase-II of (the) 1,500 Mw (project) in Bangladesh, in line with the memorandum of understanding signed for development of 3,000 Mw in gas-based projects. With these developments, RPower will be able to completely retire the US EXIM debt of  Rs 2,400 crore.”

These assets in Samalkot, Andhra Pradesh, were stranded due to lack of availability of gas. RPower is also undertaking capital expenditure of Rs 4,000 crore to install flue-gas desulfurisation in its coal-based plants.

Bid wins in Infra

On Reliance Infrastructure (RInfra), Ambani said over recent years, the company had transformed from one with more than 15 different businesses to focusing on a few, such as power distribution, transportation (highways, metro rail and airports), engineering and construction (E&C), and the defence sector. He informed shareholders about RInfra winning the bid for the Rs 7,000 crore Versova-Bandra Sea Link Project in Mumbai, awarded by Maharashtra State Road Development Corporation (MDRDC). The project would be under the build, operate and transfer (BOT) mode, protecting it from any traffic or toll-collection risk. He said he expected the project’s zero date (from which implementation begins) to be announced shortly, after the Maharashtra state elections. 

Defence

Ambani said the company saw huge opportunity in the defence segment, with 98 per cent of India’s requirement here being met through import. “India’s defence budget is overRs 3.18 trillion, of which Rs 1.1 trillion is capital outlay for purchase of new weapons, platforms and military hardware,” he said. 

Debt

On progress in reducing debt, Ambani said the group had repaid Rs 35,000 crore in the 14 months till May 2019, and wouldl be paying another Rs 15,000 crore by March 2020. Further, the group has over Rs 60,000 crore in receivables stuck in regulatory and arbitration matters, pending for five to 10 years.