More asset sales may be only way for Anil Ambani group to revive fortunes

The Anil Ambani group is facing its biggest challenge with calls from lenders asking promoter entities to top up shares amid the group’s falling market capitalisation. As promoter’s stake in listed entities falls, analysts say it’s important that the group sells assets expeditiously to revive fortunes. 

Most of the group companies’ ratings have been downgraded and their combined market value is now a fraction of their combined debt. The group’s seven listed firms had a combined m-cap of Rs 22,283 crore against a total debt of Rs 1.36 trillion at the end of September 2018. More than half of the m-cap is accounted for by Reliance Nippon Life Asset Management Company (RN Asset) — an equal JV between Reliance Capital (RCap) and Nippon Life Insurance, a debt-free firm. Both own 42.9 per cent stake each in RN Asset. Excluding RN Asset, the group has a m-cap of just Rs 10,196 crore, down 76 per cent in the past 12 months. 

Sunil Dhall, CIO of a Dubai-based family office, said that from a peak m-cap of $100 billion in the 2008 bull market to less than $4 billion m-cap now, the group had been a wealth destroyer. “As we say in the stock markets, sell when you can and not when you have to because in that case you will get pennies,” Dhall said.

In spite of a generous standstill deal signed by lenders to Reliance Communications (RCom) in June 2017 and Sasan Power, a unit of Reliance Power (RPower), getting its loan extended under the 5:25 scheme in 2015, things did not improve for the group.

Reliance Infrastructure (RInfra) also took steps to reduce debt by selling its Mumbai utility to the Adani group.

RCap plans to sell its entire stake in the MF arm to Nippon Life and monetise its stakes in Reliance General Insurance via an offer for sale to the extent of 49 per cent, list the UK subsidiary of Prime Focus (held by Reliance Mediaworks), divest from radio business, and monetise the remaining stake in Codemasters. 

However, despite the decrease in non-core investments in RCap’s portfolio, the increase in large-ticket loans in the books of Reliance Commercial Finance and Reliance Home Finance to group firms is key, Icra has said.

“The standstill deals signed with lenders did not increase the creditworthiness of the firm. On the contrary, things turned worse for RCom as stakeholders’ wealth was destroyed. The Securities and Exchange Board of India, meanwhile, has not said anything about the exposure of MFs even in the case of the Essel group,” said Shriram Subramanian, founder-CEO of proxy advisory firm Ingovern. 

A spokesperson for the Anil Ambani’s Reliance group said the lenders had invoked shares of RPower mainly due to the top-up issue, as the shares were falling continuously.

Data collated by Business Standard shows nearly 60 per cent of the group’s debt is accounted for by non-financial firms — RCom, RPower, RInfra, and Reliance Naval and Engineering. Their combined m-cap of Rs 5,611 crore is, however, just 7 per cent of their outstanding debt at the end of September 2018. 

This, analysts said, draws a curtain on the group’s ability to pull their firms out of forceful liquidation by creditors. “A drastic fall in m-cap means that they cannot raise equity to repay loans and deleverage their balance sheet. And it’s increasingly tough to service debt through internal accruals due to poor profitability,” an analyst said.

In the first nine months of FY19, the group firms reported combined operating profit (excluding other income) of Rs 7,361 crore against their combined interest obligation of Rs 11,051 crore, making it impossible for the group to service debt from internal accruals. For RCap, RNaval, and RCom interest obligations exceeded operating profits (excluding other income), while Reliance Home Finance was just on the edge with operating profits exceeding interest payment by Rs 2 crore. 

The group managed to keep its head above water, thanks to exceptional gains (or other income) of Rs 9,900 crore largely by way of asset sales during the period by RInfra and RCap. 

Fundraising through asset monetisation has slowed down due to a sharp fall in group firms’ m-cap and a general weakness in the broader equity market. “RCap has been able to achieve only about a third of the total exits planned by September 2018 with timelines for other exits being extended. The divestment plans of the group continue to remain critical to the overall credit profile of the group,” wrote CARE Ratings’ Ravi Kumar in a recent rating update on Reliance Home Finance.

Early this week, debt instruments of Reliance Home Finance and Reliance Commercial Finance were downgraded by CARE Ratings. They join RCom and RNaval, which are already in default category. Late last year, Icra dropped coverage on RPower due to the company’s inability to furnish a no-default certificate.