Mumbai: Anil Dhirubhai Ambani, whose four largest companies have seen their shares lose at least three times as much as the Sensex in the past 12 months, tried to reassure investors, made a few new announcements, and reaffirmed existing plans in the annual shareholders meeting on Tuesday.
The chairman of the Reliance Group said Reliance Capital Ltd (R-Cap) is in “advanced stages of discussion” with its Japanese partner Nippon Life Insurance Co. to sell a stake in its asset management business; that a number of companies had shown interest in partnering with R-Cap in its general insurance business; that R-Cap would definitely look to set up a bank, called the Reliance Bank; and that Reliance Communications Ltd (R-Com) would likely conclude a transaction for the sale of its towers expeditiously.
Ambani, who said that because such a transaction is likely to be the largest private equity deal in India, it was likely to take time, also added that the promoters of R-Com, led by him, would look to increase their stake in the company to the maximum permissible limit of 75% “at an opportune time”. The proposed increase in promoters’ holding in R-Com was to reflect their faith in the company and commitment to value creation, Ambani said. He also described the R-Cap shareholders’ demand for bonus shares and a special dividend as a “rightful request”, and said he would be taking it up with the board of the company.
AnilAmbani, chairman of Reliance Anil Dhirubhai Ambani Group (ADAG) during the annual general meeting of Reliance Capital, in Mumbai on Tuesday. Mitesh Bhuvad/PTI
None of Ambani’s announcements mentioned any specific time frame for the deals to be completed, but the combined show put up by Ambani and his business heads enthused the markets, with the shares of the four firms gaining on Tuesday.
R-Cap shares rose 3.2% from their previous close to end at Rs 394.50 each; those of Reliance Power Ltd (R-Power) gained 2.44% to Rs 81.80 apiece; those of Reliance Infrastructure Ltd (R-Infra), 1.95% to Rs 431.65; and those of R-Com, 3.78% to Rs 80.95 on BSE. The exchange’s benchmark equity index, the Sensex, rose 2.95%.
Ahmed Raza Khan/Mint
Reliance CapitalOn 1 September, R-Cap and Nippon Life announced that they intended to extend the partnership to R-Cap’s other businesses. Ambani also said the money already received from Nippon would be utilized to repay and reduce the overall debt burden of R-Cap.
“In the next few months, we expect some definite news on this exercise,” Ambani said, referring to R-Cap’s discussions with Nippon. In March, the world’s seventh largest life insurer had picked up a 26% stake in R-Cap’s life insurance business for Rs 3,062 crore.
Though R-Cap’s asset management business is India’s largest, it had witnessed a decline over the last few fiscals on parameters such as the number of mutual fund folios managed and assets under management.
The management of the firm had attributed this to its decision to move focus away from institutional money towards retail investors, for more long-term stable source of funds.
The financial services firm’s general insurance business has also in the past grappled with issues of high claims in motor and health insurance verticals. R-Cap has seen its market value erode by 50.65% in past 12 months, while the Sensex fell 16.66% in the same period.
Sam Ghosh, chief executive officer (CEO) of R-Cap, said during his presentation that the company would look to build a greater presence in emerging markets with its asset management business.
R-Com, India’s second largest mobile telephony firm by subscribers, was saddled with Rs 31,975 crore of debt as on 30 June.
It has been looking to sell its telecom tower assets for over a year now. A deal to hive off the towers to GTL Infrastructure Ltd failed in September last year. The sale of towers was expected to help R-Com reduce its debt by half. Not surprisingly, its shares have fallen by 52% in the past year.
Shishir Bajpai, senior vice-president at IIFL Private Wealth, said as a measure of long-term commitment to the company, Ambani’s decision to hike his stake in R-Com made sense.
“He (Ambani) may find it attractive to increase his stake in the company at current market prices,” Bajpai said.
Reliance Power and Reliance Infrastructure
At R-Power’s meeting, Ambani said the company is on course to achieving its target of 5,000 megawatts of power generation capacity by December 2012. R-Power has captive coal resources in India and Indonesia, and will become one of the top 10 coal-producing companies by 2014 with a production of 100 million tonnes per annum, R-Power CEO Jayarama Prasad Chalasani said.
Addressing the shareholders of R-Infra, the group’s infrastructure services arm, Ambani said the firm will garner significant revenues from 20 of its infrastructure projects in the next 12 months. R-Infra is executing around 27 projects at a total investment of Rs 45,000 crore.
Both companies have seen their shares plunge in the past year; R-Infra’s shares have lost 59.53% in this period and R-Power’s 49.07%.
Bajpai of IIFL Private Wealth observed that the annual meetings of the four big companies in the Reliance Group did not throw up any surprises and was more of an attempt on Ambani’s part to stress upon investors that despite all the negative news surrounding the group, its plans were still on track.
“Announcements like the possibility of a dividend and bonus to R-Cap shareholders may lead to short-term cheer, but execution and implementation of projects in the long-term will be the key,” Bajpai added.