The Hindu Business Line : Investment decisions — Reliance Energy to consult RIL

RELIANCE Energy Ltd's board of directors today decided to "separately" consult the board of its principal shareholder, Reliance Industries Ltd, on its future prospects.

The main agenda for the meeting was to consider consulting RIL on investment decisions of REL, said a source privy to the discussions at the board meeting.

Today's development must be seen in the context of REL committing itself to investments about which RIL was allegedly kept in the dark.

Lenders to the proposed Uttar Pradesh power project have insisted on a debt-equity ratio of 70:30; the financial institutions had reportedly rejected REL's proposal for financing the Dadri project with a 90 per cent debt component and 10 per cent equity as against the industry norm of a 70:30 debt to equity ratio.

This would have made a difference of over Rs 2,000 crore to Reliance group's investment in the project, prompting REL's decision today to consult its parent company separately, said sources close to the group.

`Full confidence in existing management': The board also requested the six directors who had resigned last week to reconsider their decision.

"The board reposed full trust and confidence in the existing management of the company. ... the board decided that the six directors will continue to function normally, as before," said a statement from REL today. The statement, issued after a four-hour board meeting at Reliance Centre also said: "... the board of directors also decided to separately consult the board of its principal shareholder, Reliance Industries Ltd, on several matters concerning the future prospects of the company, and related issues."

UP project: According to industry observers, the statement is a clear indication that RIL, which holds 50.2 per cent stake in Reliance Energy Ltd, would take investment decisions for the proposed 3,740-MW Uttar Pradesh power project.

The project was announced by Mr Anil Ambani, REL's Chairman and Managing Director, apparently to promote investments in Uttar Pradesh.

Sources in Reliance Industries said that the decision to set up the Uttar Pradesh power project had been taken without consulting the RIL board.

The six directors who tendered their resignations last week are Mr Satish Seth, Executive Vice-Chairman; Mr S.C. Gupta; Mr J.P. Chalasani; Mr K.H. Mankad; Prof J. Ramachandran, an independent Director; and Mr Amitabh Jhunjhunwala. No reasons were cited for the resignations.

"None of the six directors participated in the discussions," the source said.

"Although these six men are expected to withdraw their resignations, they have not yet done so," he said. The resignations of the board members last week were widely considered a fallout of the discord between Mr Anil Ambani, Vice-Chairman of RIL, and his elder brother Mr Mukesh Ambani, Chairman, RIL.

`Climbing down': Today's development at the REL board to separately consult the board of RIL is being seen by the industry circles as a `climbing down' by Mr Anil Ambani.

On the flip side, it is also being viewed by another section as an escape route for REL, in case the Uttar Pradesh project turns out a non-starter.

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