In a major attempt to clean up its balance sheet, the Reliance group's power vehicle BSES has transferred its stakes in eight generating and distribution subsidiaries to its investment arms.
Despite the de-subsidiarisation, BSES continues to control these companies but has ensured that the pressure of losses or loan guarantees does not affect its consolidated profits.
Three power generation companies, BSES Andhra Power, BSES Kerala Power and Tamil Nadu Industries Captive Power, have been de-subsidiarised, along with five distribution companies, including the three ailing Orissa distribution companies and the two it bagged in Delhi last year.
Some of the BSES units have seen increased losses and disputes with the respective state regulators.
BSES has communicated that the de-subsidiarisation came into force with effect from March 29.
"The de-subsidiarisation of certain companies is part of an internal restructuring exercise which has been under the consideration of the board of directors and which has now been implemented. There is no change of control of the BSES group over these companies, which have ceased to be subsidiaries," a BSES spokesman said.
The move comes close on the heels of the Reliance group acquiring a 58 per cent stake in BSES through a second open offer made with the intention of acquiring management control. Further, the Reliance group has beefed up its board presence.
After the de-subsidiarisation, BSES will primarily remain a power distribution company for the Mumbai suburbs with a 500 mw power plant at Dahanu in the state. It will also have two wholly owned subsidies, BSES Telecom and BSES Infrastructure Finance.
BSES Telecom is setting up an optic fibre network in Mumbai and operates an Internet service, while BSES Infrastructure Finance offers advisory services to group companies.
BSES will also have a joint venture with NTPC and a large holding in Maithon Power, which is setting up a 1,000 mw thermal project in Jharkhand.
Analysts said the de-subsidiarisation exercise would enable BSES to raise further capital on better terms if it chose do so.
Although BSES posted a net profit of Rs 280.74 crore in 2001-02 the consolidated net profit, including those of its subsidiaries, fell to Rs 246.22 crore.
The consolidated accounts did not take into account the results of three Orissa distribution companies, which the company acquired for Rs 117 crore in 1999.
The annual report for 2001-2002 says the financial statements of these three companies were not finalised for the period ended March 31, 1999.
Consequently, the subsequent statements too could not be finalised. However, based on provisional information, the losses of these companies have eroded their net worth.