Trouble for Anil Ambani: BSR resigns as RPower, RInfra's statutory auditor

The Anil Ambani group is under fresh stress, as auditors of two of its companies — Reliance Power (RPower) and Reliance Infrastructure (RInfra) — have resigned. With this, auditors of four of the Reliance Group companies have quit in the past three months.
RInfra informed the stock exchanges on Friday that BSR & Co had resigned as the company's auditor. “BSR & Co LLP (BSR) vide its letter dated August 9, 2019, has resigned as one of the statutory auditors of the company,” it said. In a similar statement, RPower informed the exchanges about BSR & Co resigning as its auditor with effect from August 9.

In its resignation letter to the two companies, BSR cited concerns raised in the FY19 audit reports as the reason for quitting.
“The reason cited by BSR is that for the reasons included in Basis of Disclaimer in their audit report dated June 14, 2019, for the financial year 2018-19, they have carried out their annual continuance process and basis that assessment they has expressed their inability to continue as statutory auditors to the company,” RInfra said in its statement.
In the June 14 audit report, auditors of RInfra raised concerns over inter-corporate deposits, including accrued interest, investments, receivables and advances worth Rs 7082.96 crore. The auditors added they could not find sufficient information to establish a relation between these companies and RInfra.
RPower in its statement said, “The reason cited by BSR is that for the reasons included in Basis for Qualified Opinion in their audit report dated June 8, 2019, for the financial year 2018-19, they have carried out their annual continuance process and basis that assessment they has expressed their inability to continue as statutory auditors to the company.”
In the June 8 report, auditors stated that during FY19, the company took inter-corporate deposits from certain companies worth Rs 403.41 crore. The auditors said there was not enough information available to determine the related party relationship of these companies. “Had these companies been considered to be related parties, the company would require prior approval of the audit committee which has not been obtained.”
In separate statements the two companies added that the other appointed auditor for the company, Pathak HD & Associates, had confirmed it would continue as the sole statutory auditor for the company till March 31, 2020.
RPower and RInfra will report the June quarter results on Monday and Tuesday, respectively.
In June, PWC had resigned as auditors of Reliance Capital and Reliance Home Finance, citing unsatisfactory response to “certain observations” made by it as part of the then ongoing audit for fiscal 2018-19. According to sources, Reliance Capital is now looking at taking legal action against PwC.

$2 billion: Amount Anil Ambani needs in asset sales to save last stronghold

The last stronghold in embattled tycoon Anil Ambani’s phone carrier-to-power empire is also developing fault lines.
Reliance Capital Ltd., his financial services business that almost doubled its profit in five years, had largely remained insulated from the distress plaguing the wider conglomerate. Now, the company that controls India’s fifth-biggest mutual fund, is racing to close a planned $2 billion of asset sales to bolster its finances after cash dwindled to Rs 110 million ($1.6 million) as of March, according to CARE Ratings.
With $252 million of debt falling due over May and June, a unit of Moody’s Investors Service and two other local firms have slashed ratings of Reliance Capital or its short-term instruments, citing holdups in asset sales, deteriorating liquidity and risks on loans to unprofitable affiliates. The downgrades came against the backdrop of soaring finance costs for an industry shaken by last year’s meltdown at one of the nation’s biggest shadow lenders that’s unrelated to Reliance Capital.

Asset disposals are key to averting a crisis at Reliance Capital, said Mathew Antony, a managing partner at Mumbai-based Aditya Consulting, a credit advisory firm.
“Unless some strategic infusion of long-term equity comes into the company, the day when Reliance Capital falls into a liquidity crisis isn’t too far,” he said.
Payments Due
A Reliance Capital spokesman declined to comment on the steps being taken to improve liquidity.
The company told exchanges on April 27 that it has short-term debt of Rs 9.5 billion, which will get fully repaid by end-September using proceeds from the sale of its stake in the asset management business. The 43 percent stake was valued at Rs 53 billion, it said.
Of the Rs 140 billion of planned divestment, almost all the transactions are behind schedule, CARE Ratings said in an April 18 statement while slashing Reliance Capital’s long-term rating to A from A+ and putting it on a “credit watch.’’
Delayed Deals
Brickwork Ratings pared it to A+ from AA last month while ICRA, Moody’s local unit, had downgraded the short-term ratings in March, saying the “timeliness of receipt of funds” from divestment “remains critical.” More cuts have followed for other group companies as well.
The conglomerate has struggled to sell assets in other firms. While Ambani managed to dispose of the Mumbai power distribution and road assets, many others, especially in telecommunications were scuttled due to regulatory hurdles or legal delays.
The strain at Reliance Capital heightens the challenges facing Ambani, 59, who’s seen his indebted telecom operator Reliance Communications Ltd. collapse into insolvency. His ventures in power, defense and infrastructure too have battled piling debt, bankruptcy cases and regulatory snags.
Anil Ambani carved out these newer businesses for himself from Reliance Industries Ltd. as part of a 2005 settlement with his older brother, Mukesh Ambani, following the death of their father Dhirubhai Ambani three years earlier.
Bailout by Sibling
The younger tycoon’s woes came to the fore in March when Mukesh stepped just in time to settle an overdue payment and save Anil the embarrassment of a stint in jail. The value of Anil’s holdings in companies has plunged to about $120 million from a net worth of at least $31 billion in 2008, according to data compiled by Bloomberg.
ICRA has also red-flagged Reliance Capital’s “substantial exposure toward” group companies which can curb its ability to raise and repay its near-term debt obligations.
ALSO READ: More asset sales may be only way for Anil Ambani group to revive fortunes
Reliance Mutual Fund wrote down about $233 million of investments in Reliance Home Finance Ltd. and Reliance Commercial Finance Ltd. last month, although it said investors’ interests will be protected.
About nine local mutual funds, including of the biggest, have sold their share holdings in Reliance Capital in 2019, according to data compiled by Bloomberg. Mutual funds held 1.23 percent of its equity at the end of March, down from 4.1 percent at the end of December, according to data on the BSE Ltd.’s website.
Adequate Safety
Despite the recent downgrades, the ratings are still several notches above the junk category. Quoting the methodology of CARE and Brickworks, the company said that its current rating implies “adequate degree of safety regarding timely servicing of financial obligations.”
Still, asset sales “in a time bound manner” are essential for Reliance Capital to tide over its difficulties, according to Kranthi Bathini, an analyst at WealthMills Securities.
Shares of Reliance Capital have plummeted 40 percent this year, triggered partly by adverse news flow around Ambani’s companies and partly the shock default of shadow financier Infrastructure Leasing and Financial Services Ltd., which squeezed funding for all non-bank lenders.
Reliance Communications is headed for bankruptcy proceedings after it failed to close the sale of its telecom assets and repay lenders. Reliance Naval and Engineering Ltd. has proven hard to turn around while Reliance Power Ltd. has been fighting for higher tariffs to make up for increased costs.
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“When all group companies are constrained by liquidity problems, the strongest company will get impacted as a natural fallout,” said Hemindra Hazari, an independent analyst who writes for the Smartkarma platform. Reliance Capital is one of the four Anil Ambani group companies conglomerate that are among the worst performers on the S&P BSE500 index this year.
Reliance Capital, however, has seen its revenue and profits rise over the past few years. Net income nearly doubled to Rs 13.1 billion in the 12 months through March 2018 from five years ago, while net revenue tripled to Rs 158.7 billion.
ALSO READ: From sixth richest in the world to possible arrest: The fall of Anil Ambani
“Though these assets are good, they may not manage to get the kind of valuations that they have been looking for,” said Bathini. “The bidders know the company is in dire straits.”

From sixth richest in the world to possible arrest: The fall of Anil Ambani

Indian billionaire Anil Ambani has spent years fending off creditors and suing critics of his debt-saddled business empire. But his moment of reckoning may have arrived, as he races to pay debts or face a possible jail sentence.
On Feb. 20, India’s Supreme Court said that the Reliance Group’s phone unit had disobeyed a ruling to pay about $77 million owed to the local subsidiary of supplier Ericsson AB, adding that the tycoon will personally face three months of jail unless the payments are made within four weeks. Ambani’s group said it will comply with the order and make the payments within the required time.

It’s an extraordinary fall for a man listed by Forbes magazine in 2008 as the world’s sixth-wealthiest person. The court’s decision comes after a tough year for Ambani, as parts of his empire saw losses and competition in India’s telecommunications market became increasingly brutal. His story also offers insights into how far India has come in cracking down on overdue borrowers and curbing the financial impunity of its richest citizens.
“He has reached the final weeks of the battle,” said Arun Kejriwal, director at KRIS, a Mumbai-based investment advisory firm. Ambani can fight with Ericsson and other creditors but can’t do that with the nation’s top court, he said.
Anil Ambani took ownership of the telecom business after battling his older brother, Mukesh, in a high-profile dispute over control of the sprawling conglomerate built by their father, who died in 2002 without a will. Prior to the patriarch’s death, the Ambani brothers served as executives at their father’s company. Three years after their father’s passing, the dispute was settled by splitting the empire into two, vaulting both Ambanis among the ranks of India’s wealthiest businessmen.
The founder’s death left the sons in charge of the massive family business just as India was about to enter a growth spurt powered by a newly upwardly mobile middle class. Even as Anil’s star has faded, his older brother Mukesh has gone on to become Asia’s richest man. Representatives for both brothers didn’t comment.
Bloomberg News is currently defending litigation brought by Anil Ambani, 59, and Reliance Communications Ltd. in connection with previous Bloomberg reporting.
Here’s a look at how the sibling rivalry at the Ambani family, troubles at the telecom business and India’s tougher stance on credit, contributed to the decline in Anil’s fortunes.
Fortune Divided
When the family feud was settled in 2005, Mukesh got control of the flagship oil-refining and petrochemicals business. Anil, meanwhile, got the newer businesses such as power generation, financial services and a telecom business, which was seen as a prime growth prospect.
From there, Anil’s companies borrowed heavily to diversify and build a credible conglomerate that could generate the kind of revenue enjoyed by Mukesh’s refining firm Reliance Industries Ltd.
Telecom Headwinds
A non-compete clause between the brothers kept Mukesh out of telecoms until the agreement was scrapped in 2010. The elder brother’s return to telecom resulted in the creation of Reliance Jio Infocomm Ltd., which built a nationwide 4G wireless network.
At the same time, the younger Ambani brother was facing intensifying competition in the fast-growing wireless-phone business. As carriers fed off each other’s subscribers, Reliance Communications raised borrowings to keep up. Still, the carrier lost its rank as the No. 2 carrier in a slide that accelerated when Mukesh fatefully barged into the market. Jio’s entry into the market in 2016 pressured all rivals, including Anil’s company, because it lured so many of their customers away with free calls and cheap plans.
“Telecom was a tale of disaster for Anil owing to cutthroat competition, which led to industry-wide consolidation and debt overhang," said Mumbai-based Alok Shende, principal analyst at consulting firm Ascentius Insights.
Other Businesses
While his attempts to sell telecom and other assets failed to generate the needed cash, problems emerged at some other businesses as well. Shares of Reliance Naval & Engineering Ltd., a warship and submarine maker bought in 2015, fell as the company continued to post losses.
Electricity generator Reliance Power Ltd., also part of Anil’s group, has failed to stem a decade of stock declines since its then-record initial public offering in 2008.
Jail Risk
The Supreme Court’s remarkable warning to one of the nation’s most prominent businessmen came after months of wrangling.
The row with Ericsson began when the Swedish equipment maker sought to collect overdue payments from Reliance Communications, or RCom. The Indian company appeared to settle the dispute with Ericsson in May last year, but failed to meet the payment deadlines, prolonging the row.
Separately, RCom had agreed to sell its airwaves, towers, fiber and other telecom assets to Jio in December 2017 to fend off creditors. But regulatory and legal hurdles stalled the closing of the deal, frustrating RCom’s attempts to repay lenders. RCom ultimately decided to enter bankruptcy proceedings this month after struggling to repay billions of dollars in debt.
However, India’s top court this week said it will put the Indian mogul behind bars unless his group pays Ericsson within four weeks.
What’s Next?
As part of efforts to comply with the court order, RCom has said it requested urgent approval from its lenders to release about 2.6 billion rupees ($37 million) received from income tax refunds, which are in its bank account, directly to Ericsson. A sum of 1.2 billion rupees has already been deposited with the Supreme Court and the company is confident it will be able raise the balance of about Rs 2 billion in time, it said.
Meanwhile, Anil’s Reliance Capital Ltd. has sought to raise funds by inviting Nippon Life Insurance Co. to take full control of their joint venture Reliance Nippon Life Asset Management, according to a stock exchange statement.
"This is the easiest and fastest way to resolve the looming crisis," Kejriwal said.

Favourable ruling boosts Anil Ambani firms' stocks, RCom shares climb 7.1%

Shares of the Anil Ambani group companies rallied on Friday, after courtroom victories for Reliance Naval and Engineering and Reliance Communications. Reliance Naval shares closed 15.7 per cent higher over Thursday; Reliance Communications shares climbed 7.1 per cent before closing 2.3 per cent higher.
The Supreme Court (SC) on Friday refused to order a probe into purchase of French fighter jets from Dassault Aviation. A little later in the day, the government told the SC it would approve Reliance Communications’ airwaves sale in two days, a deal that Ambani’s indebted operator badly needs to stave off bankruptcy.

The two developments boosted the market capitalisation of five large listed Ambani firms by $68 million.
This is a relief for investors who have seen huge market capital erosion this year, as the group was dogged by insolvency lawsuits, hurdles to asset sales, and allegations of government nepotism.
Ambani, younger brother to Asia’s richest person, Mukesh Ambani, welcomed the court verdict on the Dassault controversy.
“(This established) the complete falsity of the wild, baseless and politically motivated allegations levelled against the Reliance group and me personally,” he said in an emailed statement.
Some experts believe the share price jump could only be a knee-jerk reaction from the market.
“Favourable Supreme Court judgments have boosted the share price. However, it is irrational the way the stock prices have moved up. I am not very bullish on the prospects of these two companies. I would recommend investors to use the rally to exit their holdings,” said S P Tulisan, founder of investment advisory firm SP Tulsian.com.
Reliance Communications is eyeing an asset-mobilisation plan to bring down its debt burden of Rs 460 billion. The company expects to raise Rs 180 billion from sale of its wireless assets to RJio and real estate assets to Canada’s Brookfield.
Shares of Reliance Communications have more than halved this year on fears of bankruptcy. Market value of six other listed group companies was also down, between 44 per cent and 66 per cent this year. Currently, the total market capitalisation of the seven group companies down to Rs 390 billion from Rs 796 billion.
Currently, the most valuable company of the Anil Ambani group is Reliance Nippon Life Asset Management, a leading mutual fund player. The company, backed by Japan’s Nippon Life, has a market capitalisation of Rs 103 billion.