The Hindu Business Line : Share sale by Reliance Capital sparks dissent

MONDAY marked the beginning of annual results of Reliance companies and sparks were set to fly in the backdrop of the simmering Ambani feud. The board of directors of Reliance Capital Ltd (RCL) that met here today could announce only a Rs 10-crore increase in its net profit for the quarter ended March 31.

If there was any lack of drama in the results, it was more than made up by one item on the agenda - RCL's disinvestment of 50 per cent stake in Reliance Petroinvestments Ltd (RPiL), which holds 46 per cent equity shares of Indian Petrochemicals Corporation Ltd (IPCL).

While the RCL board passed the accounts, there was one voice of dissent from one of the directors, Mr Amitabh Jhunjhunwala, a known confidante of Mr Anil Ambani. Mr Jhunjhunwala confirmed that he had objected to the disinvestment. This is an issue of corporate governance as the shareholders of RCL have been kept in the dark about it, he said.

According to a RCL spokesperson, RPiL had invested Rs 2,639 crore to buy 11.2 crore shares of IPCL at Rs 231 a share. RPL had borrowed Rs 2,579 crore from Reliance Industries. As the present value of IPCL share was only Rs 160 a share, the net asset value of RPiL share was less than its par value, he said.

"Therefore, RCL decided to sell these shares at par value to Reliance Pharmaceutical Pvt Ltd and Reliance Nutraceutical Pvt Ltd, whose ultimate economic benefit accrues to RIL. RCL shareholders, therefore, have not lost in this transaction," he said.

The par value price of 5.6 crore IPCL shares (50 per cent of 11.2 crore shares) is Rs 896 crore while the acquisition price was Rs 1,293.6 crore. RCL had invested Rs 4.44 crore in the equity of RPiL, a similar amount being invested by RIL through its subsidiary in RPL.

RPiL is the holding company for Reliance group's 46 per cent stake in IPCL. RPiL, in turn, is owned 50 per cent by RCL and 50 per cent by RIL. Market watchers view the consolidation of RPiL in the hands of the flagship RIL as a part of ownership settlement manoeuvre, given the dynamics of the Ambani asset division plan.

In the open offer made to acquire 20 per cent in IPCL in 2002, following the acquisition of 26 per cent stake from Government of India, a clutch of Reliance group companies picked up 4,96,45,125 equity shares of the company at Rs 231 a share.

The entities that picked up the Vadodara company's shares were Reliance Petroinvestments, Reliance Industries, Reliance Ventures, Reliance Capital , Reliance Power Ventures at an aggregate cost of Rs 1,146.8 crore.

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