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Question mark over some Reliance deals

BS Corporate Bureau in Mumbai | January 05, 2005 10:17 IST
Last Updated: January 05, 2005 11:52 IST

Fresh allegations have surfaced of complicated financial transactions under which the shareholders of Reliance Industries Ltd seem to lose out, while associate companies that are linked now to the Reliance promoters (persons acting in concert) benefit by large sums.

Transactions between Reliance and its associate companies have the end result whereby Reliance Industries has lent money to the associates, mostly without interest, and with repayment periods stretching to 25 years.

The Reliance 'ownership issue'

The associates have the right to convert the loans (in the form of convertible debentures) into equity, but Reliance Industries itself has no such option. If the debentures are not converted, the money is returned at par.

The associates used the money lent by Reliance Industries {about Rs 1,400 crore (Rs 14 billion)} to buy shares in Reliance Petroleum. After the petroleum company's merger with Reliance Industries, the associates owned 4.7 per cent of Reliance Industries' stock.

This stock is now valued at more than Rs 3,500 crore (Rs 35 billion). But the benefit of the increased valuation does not go to Reliance Industries or its shareholders, it stays with the associate companies.

In the process, 4.7 per cent of the Reliance Industries stock, worth more than Rs 3,500 crore (Rs 35 billion), has passed into the hands of companies that are no longer shown by Reliance Industries as "related parties".

This is contrary to the commitment made by Reliance Industries at the time of the merger with Reliance Petroleum, that the general body of Reliance Industries shareholders would enjoy all the "economic benefits" of this 4.7 per cent shareholding.

As against this, the four companies are now listed by Reliance Industries as being under the general category of promoters/persons acting in concert.

The four companies are called Reliance Chemicals, Reliance Aromatics and Petrochemicals, Reliance Energy and Project Development, and Reliance Polyolefins. All of them are private limited companies.

Their directors are persons by the names of Jayesh Shah, Devesh Shah, V Subramaniam, Mangal Kulkarni, HR Shah, Manoj Sethi, R Santhana Raman, KG Doshi, CS Gokhale and Rohit Shah.

The four companies in question each has a share capital of only Rs 100,000. While the identity of their shareholders is not known, the directors are individuals who cannot easily be placed in a Reliance context.

These disclosures came to Business Standard from sources believed to be close to Anil Ambani, vice-chairman and managing director of Reliance Industries, who is locked in a duel over ownership and management issues with his elder brother Mukesh Ambani, who is the Reliance Industries chairman and managing director.

Questions on these disclosures, put late on Tuesday evening to sources close to Mukesh Ambani, did not elicit much by way of a response.

However, a person speaking from the company chairman's office telephoned to say that the company would be able to respond to the questions on Wednesday, and requested that a report on the subject be postponed accordingly.

A senior Reliance Industries source added: "Anil Ambani was very much a part of Reliance Industries when these decisions were taken and implemented. He did not oppose any such decision. Now, if he wants to oppose them, he should come out publicly or discuss these issues at the board level."

How it was done

  • Reliance Industries lends associate firms money, mostly without interest
  • The associates use the money (about Rs 1,400 crore) to buy shares in Reliance Petroleum
  • After Reliance Petroleum's merger with Reliance Industries, the associates own 4.7% of Reliance Industries

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