Financial Daily from THE HINDU group of publications
Saturday, Sep 03, 2005
Mukesh Ambani group to use RIIL for funding cos
Kolkata , Sept. 2
THE Mukesh Ambani Group has decided to use the relatively-unknown Reliance Industrial Infrastructure Ltd (RIIL) for funding its major group companies, including an overseas venture. In the process it might also increase its exposure to these companies.
RIIL, which was earlier known as CPPL (Chembur Patalganga Pipelines Ltd), will give loans more than the prescribed limit of 60 per cent of its free reserves and paid-up share capital.
The company is prepared to invest up to 300 per cent of its paid-up capital and free reserves, or 500 per cent of its free reserves, whichever is higher, in a number of group companies.
Investments may be made in Reliance Industries Ltd, the flagship venture, and Indian Petrochemicals Corporation Ltd. Also, investments are likely in infrastructure outfits such as Reliance Utilities and Power and Reliance Ports and Terminals. The UK-based Reliance Europe also features in this list along with two other firms Recron Infoinvestments and Reliance Petro Marketing.
A special resolution has been worked out and posted to RIIL shareholders for approval. The Company Secretary, Mr N. Shanker, has clarified that it is an "enabling resolution" for empowering the board.
It is proposed to deploy the surplus funds arising out of internal accruals as inter corporate loans, give guarantees or provide security in connection with loans/investments in bonds and in other securities of the companies.
It may be noted that Section 372A of the Companies Act, 1956, does not allow a company to invest more than 60 per cent of its paid-up capital and free reserves in another company. However, this limit can be increased if such a move is approved by shareholders through a special resolution in a general meeting.
Mr Shanker has also stated that only the "surplus funds arising out of internal accruals" of the company would be "profitably" invested in the group outfits.
At present, RIIL's paid-up capital stands at Rs 15.10 crore. According to the 2004-05 annual report, its general reserve stood at Rs 29.52 crore and revaluation reserve at Rs 21 crore. The company also had Rs 9.60 crore in its share premium account.
RIIL has already made substantial investments in these companies. For example, it holds 86,000 shares of Reliance Industries and 5.54 lakh shares (face value of it is one pound sterling) of Reliance Europe. It also holds two sets of unsecured redeemable non-convertible debentures in Reliance Utilities and Power, worth roughly Rs 75 crore.
Reliance Industries holds over 46 per cent of RIIL's equity, which makes it the single-largest shareholder in RIIL. Promoters' stake (as on June 30) stood at 19.87 per cent only, while the public held 26.26 per cent.
On Friday, the RIIL stock shot up to its 52-week high of Rs 223.70 on the NSE, before closing at Rs 215. This, it may be mentioned, is a three-fold increase from its low of Rs 67.05.
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