Reliance Infra demerger plan to be pushed to next fiscal

Firm moves HC, says unlikely to get lender, regulatory consent by May deadline

The Anil Ambani-promoted Reliance Infrastructure (RInfra) is likely to postpone its demerger plan to the next financial year. The company has moved the Bombay High Court, which is hearing its scheme of arrangement, seeking a change in the effective date of plan to April 1 this year.
 
The earlier date was April 1, 2016. After the scheme is approved, it would take effect in financial year 2017-18 (FY18). The court is likely to take up the matter early next week.
 
The Rs 6,282-crore restructuring scheme, by which RInfra plans to hive off its power generation and distribution facilities into a separate entity called Reliance Electric Generation and Supply (REGSL), was initiated a year ago as part of its deleveraging effort.
 
In January, the court had asked RInfra to obtain written consent from all lenders, secured and unsecured. The deal also required consent of the Maharashtra Electricity Regulatory Commission.
 
The company, in a plea on March 15, told the court it would not be able to get the consent letters by May 30, the regulatory deadline for listed companies to file audited FY17 results. “Hence, it may not be possible to make the scheme effective prior to 30 May, 2017. As a result, the audited financial results of the applicant company for the financial year 2016-17 will not be able to take into account the effect of the scheme in its books of accounts... This may cause undue hardship to the applicant company for publishing of the annual financial results to the stock exchanges within 60 days from the close of the financial year,” the company said.
 
RInfra executives did not offer further comment. The application specifically mentioned foreign currency borrowings from Credit Agricole and Mizuho Bank, from which written consents were required by the court.
 
In December, the Life Insurance Corporation of India (LIC), which had an 11.93 per cent stake and a debenture exposure of Rs 2,000 crore in RInfra, had set certain conditions for its consent to the demerger. The company agreed to these. According to statements by the company, the demerger was aimed at increasing shareholders’ value by leveraging diversified investment opportunities, or assigning of appropriate risk and valuation to different businesses, based on their respective risk-return profile and cash flows; pooling of resources at the company level and allocation of capital to each of the businesses-based on risk-return; and simplified and transparent businesses and achieving operational synergies.
 
RInfra has three business segments — electrical energy, EPC (engineering, procurement, construction) and contracts, and infrastructure.
 

Under the first, the company generates, transmits, and distributes electricity. It has a 500 Mw thermal power station at Dahanu, near Mumbai, a 220 Mw power plant at Samalkot (Andhra Pradesh), a 48 Mw power plant at Mormugao (Goa) and a 7.6 Mw wind energy farm at Chitradurga (Karnataka).
 
Of the Rs 6,282 crore consideration, Rs 5,580 crore is for the Mumbai division, while the Samalkot and Goa facilities are valued at Rs 560 crore and Rs 110 crore, respectively. The windmill was worth Rs 40 crore.
 
The company had signed a non-binding term sheet and entered into exclusive talks with Canadian pension fund PSP for the sale of 49 per cent of its Mumbai power generation, transmission and distribution business, according to an exchange filing in 2015.
 
Montreal-based PSP manages 112 billion Canadian dollars ($84 billion) and oversees the retirements savings of public servants, the Canadian Forces, and the Royal Canadian Mounted Police.
 
The EPC and contracts segment is engaged in the business of construction, erection, commissioning and contracting. The infrastructure segment develops, operates and maintains toll roads, metro rail transit systems and airports.
 
In December 2015, the company acquired management control in Pipavav Defence. On March 16, the company told exchanges that the board had cleared a plan to raise funds through qualified institutional placement. R-infra shares ended Wednesday’s trade with a loss of 2.52 per cent at Rs 560.95 a piece.

Road to a new structure

• March 16, 2016: Reliance Infrastructure (RInfra) board clears a Rs 6,282-crore demerger plan
• June: Shareholders clear plan in a court-convened meeting
• August:  Company modifies scheme to make the transferee a public limited company 
• December: LIC lays down conditions; company agrees to comply
• January 2017: Court directs company to take written consent from all lenders
• March: RInfra moves court seeking change of effective date

Sources: Filings, court documents