As the Anil Ambani owned Reliance Group, struggles to sell its assets and live upto the statement of Mr.Ambani, that the group, with borrowings of over Rs.1 lakh crores, was fully committed to meeting all future debt servicing obligations in a timely manner through asset sales, more and more assets of its are being put on the block. Among others, it sold its prestigious power distribution business for Rs.12700 crores to the Adani group last year and those presently on sale include the Delhi-Agra toll road for Rs.3600 cr. and its Mumbai headquarters in Santacruz, for a reported price of Rs.500 crores. While the group failed to live upto its promise to repay lenders to R.Com, which has unpaid loans of over Rs.50000 crores and is now undergoing liquidation, it is yet confident that through such asset sales, its flagship entity RInfra will repay all its loans and become debt-free by 2020.
While the debt loaded group struggles to repay its loans, all has not been reported to be good, in this changed scenario where the embattled auditors are unwilling to toe the line and be partners in the crime of fudging financial statements, (which they willingly did earlier), which hide management misdeeds, that typically include the diversion and siphoning of funds, generally through related party transactions and other bogus advances and deals, in order to siphon away funds. It was for such reasons that PwC, the statutory auditors of Reliance Capital and its subsidiary Reliance Home Finance resigned on 2nd June, refusing to sign its financial statements for FY 2019. The auditors of RInfra refusing to sign its financial statements for FY 2019. The auditors of RInfra too expressed concern over its financial results for FY 2019 and said that they are unable to express an opinion thereon. Even in the case of RPower, the auditors had severe reservation about its FY 2019 results and had flagged related party transactions, withdrawals from reserves and depreciation methods, clearly indicating serious flaws in the financial statements.
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With RCom having gone into liquidation, leaving its numerous lenders high and dry, its affairs have been a matter of investigation and the initial reports thereon are not good, SBI the lead lender to RCom has commissioned a probe into RCom and its two other entities. This probe has flagged transactions worth Rs.5500 crores for further investigation, with suspected funds diversion, evergreening of loans and dubious preferential transactions. The findings say that RCom gave a huge capital advance of Rs.4000 crores in May 2017, to a little known entity called Netizen, which never supplied anything and the advance was simply adjusted and written off. The auditors were required to report the same, but did not. Inter-corporate deposits of Rs.600 crores were paid to another group company and were not recovered and loans were greened through the misuse of letters of credit. The matter is under further investigation, with the jilted RCom lenders unwilling to accept such a state of affairs, and contemplating suitable action.
And while it is apparent that there has been rampant financial mismanagement in the group entities, with serious falsification of the financial statements, the news comes that the bankers to RInfra and R Power, have signed an inter credit agreement (ICA), setting up a time line of 180 days in order to resolve their debt default. As per the RBI circular, once an ICA is signed by the lenders, matters are kept at a standstill and no individual lender is allowed to take action against the defaulting borrower. While it makes sense to give such time to arrive at a resolution of the loans, that would apply where the default is for bonafide reasons, the financial statements do not hide the truth and where there has been no siphoning/diversion of funds by the management, which is reportedly not so in these cases. The bankers must proceed carefully and prudently to recover their dues, and should not be lenient where the defaults are not the least bonafide.
With enormous amounts at stake and RCom having already left the bankers reeling under huge losses, and its investigation revealing murky transactions, it is imperative for banks to conduct an investigation into the affairs of RInfra, RPower and RCapital, before any kind of a debt resolution is done by bankers, particularly one which gives any kind of concession or liberties to the Reliance Group. The Reserve Bank prohibits any kind of a settlement by banks with a wilful defaulter and that must be investigated in this case, before the bankers move ahead, with any concessions to RPower and RInfra.