Reliance Infocomm parked almost Rs 3,500 crore (Rs 35 billion) in receivables in an off-balance sheet deal at the end of March 31, 2004, with Smart Entrepreneur Solutions Pvt Ltd, a Reliance Communications Infrastructure Ltd subsidiary.
This had the effect of freeing Reliance Infocomm's books of receivables to that extent. Had this not been done, Reliance Infocomm would have had to make provision for bad debts to that extent.
The Reliance 'ownership issue'
Around March or April this year, Reliance Infocomm was negotiating with the government of Singapore and Temasek Holdings for them to take a stake in the company, a source said, but the deal did not fructify.
Last financial year Reliance Industries Ltd entered into an arrangement with Reliance Infocomm to buy and sell mobile handsets, maintain accounts, bill subscribers and collect the money due to Reliance Infocomm.
But in the process, RIL accumulated receivables amounting to almost Rs 3,500 crore. RIL vice-chairman and managing director Anil Ambani declined to sign the RIL balance sheet, arguing that RIL should not take this on its books. It was then decided that the receivables should go on Reliance Infocomm's books.
Reliance Infocomm had internally estimated that 20 per cent of the revenues from subscribers (that is, receivables) would not be paid and had kept aside Rs 470 crore (Rs 4.7 billion) for this {implying thereby that its revenues would be Rs 2,350 crore (Rs 23.5 billion)}.
After Anil Ambani raised objections to the receivables being put on RIL's balance sheet, they were passed on to Smart Entrepreneur Solutions Pvt Ltd. RCIL gave a loan of Rs 3,426 crore (Rs 34.26 billion) to Smart Entrepreneur to finance this. RCIL is Reliance Infocomm's holding company.
Asked about all this, a senior Reliance group executive said RIL transferred the receivables to Smart Entrepreneur Solutions. "It was a routine commercial transaction, in the nature of a securitisation transaction. RIL was fully paid."
He also said, "There is no proof that Anil Ambani opposed the move to retain the receivables on RIL's balance sheet."
On the negotiations with the government of Singapore and Temasek Holdings, he added: "Financial institutions from all over the country have shown interest in picking up a stake in the company. The process is on. However, Reliance Infocomm has not taken any decision on this."
RIL holds a 45 per cent stake in RCIL, which in turn has a 65 per cent stake in Reliance Infocomm. RIL also holds a 7.5 per cent stake directly in Reliance Infocomm.
RIL chairman and managing director Mukesh Ambani and others hold a 55 per cent stake in RCIL and a direct 27.5 per cent stake in Reliance Infocomm.
Unwrapping a deal
In March Reliance Industries entered into an arrangement with Reliance Infocomm to buy and sell mobile handsets, maintain accounts, and bill subscribers for Reliance Infocomm
But in the process Reliance Industries accumulated receivables amounting to almost Rs 3,500 crore
Anil Ambani declined to sign the Reliance Industries balance sheet, arguing Reliance Industries should not take this on its books
The receivables were then passed on to Smart Entrepreneur Solutions, a subsidiary of Reliance Communications Infrastructure Ltd