The trouble brewing at Anil Ambani group companies (ADAG Group) has hit crisis levels in the last few weeks. One tragedy after another with various companies within his group has seen share prices tumble to new lows in such a way that Anil Ambani may not even be worth a billion $ at today’s prices from once being one of the richest men in the country.
To give you an overview, two among his most prestigious companies, Reliance Infrastructure and Reliance Power, both have reported their biggest ever quarterly losses in history in the last few days.
Reliance Power reported a loss of ₹ 3,560 crore for the quarter ended 31st March 2019. This compared with a profit of ₹ 188 crore in the year earlier period, according to exchange filings. The Power unit’s revenue dropped 32% year on year and its debt has tripled in the previous financial year.
Its sibling Reliance Infrastructure didn’t fare much better either, reporting a consolidated net loss of ₹ 3,301 crore just a day ago for the quarter ended 31st March 2019. This compares with a net profit of ₹ 133.66 crore for the year earlier period.
Both the firms booked a one-time impairment loss of ₹ 4,170 crore and ₹ 8,480 crore respectively for erosion in value of its subsidiaries within the group. However, this impairment loss was partially set off against their respective general reserves without which the net loss in both companies would have been even worse. Impairment costs are declared when the asset value significantly declines.
To make matters worse, within a week of top accounting firm Price Water House Coopers quitting as auditors of Reliance Capital and Reliance Home Finance citing they were prevented from exercising independent judgement and were not allowed to do their job as auditors, now it was the turn of the auditors of Reliance Infrastructure to point out irregularities in the balance sheet of yet another of the ADAG Group companies. Auditors BSR & Co. (which is an affiliate of KPMG) and Pathak HD & Associates stated that they were unable to obtain sufficient appropriate audit evidence to provide a basis for their audit opinion. The auditors were referring to investments made in other companies worth ₹ 7,083 crore and corporate guarantees given worth ₹ 1,775 crore.
R Infra claims that both these amounts are recoverable by the company that would improve their financial position in the future, however, the auditors found no evidence of it.
Reliance denies any wrong doing and claims that there was a mismatch of cash flows and that they will be debt free in the near future.