These companies -- Reliance Polyolefins Pvt Ltd, Reliance Energy and Project Development Pvt Ltd, Reliance Chemicals Pvt Ltd, and Reliance Aromatics and Petrochemicals Pvt Ltd -- were lent money by Reliance Ventures Ltd, a subsidiary of Reliance Industries Ltd, for buying preference shares in Reliance Telecom Ltd and for making loans to other companies, on terms and conditions that were not known to the RIL shareholder.
The Reliance 'ownership issue'
The implication of the new disclosures is that these four companies are not only special purpose vehicles used for parking a 4.7 per cent stake in RIL, they are also being used to route funds to other companies on terms and conditions that have not been made explicit to RIL shareholders.
The balance sheets of the companies show that on March 31, 2002, they collectively owned Rs 1,419.34 crore (Rs 14.19 billion) worth of shares in Reliance Petroleum, shares that were converted into RIL stock at the time of the merger between RIL and Reliance Petroleum.
It is well known that these shares were bought by these four companies issuing optionally convertible debentures, which were subscribed to by Reliance Ventures.
What is not so well known is that in 2002-03 these companies borrowed further amounts, which have been used for investing in Reliance Telecom and in lending to other unnamed companies.
During 2002-03, these four companies invested Rs 112.50 crore (Rs 1.12 billion) each in buying 1 per cent optionally convertible preference shares of Reliance Telecom.
The balance sheet does not specify the terms of conversion of these debentures nor why the coupon is as low as 1 per cent.
Further, these companies also made zero coupon optionally convertible loans to the tune of Rs 204.52 crore (Rs 2.04 billion) to unnamed companies in 2002-03, while one of them, Reliance Aromatics and Petrochemicals Pvt Ltd, also made a zero coupon fully convertible loan of Rs 43 crore (Rs 430 million). The balance sheets do not say to which company these loans were made.
These fresh loans and investments in Reliance Telecom, which together amounted to Rs 697.52 crore (Rs 6.97 billion) as on March 31, 2003, were funded by zero coupon optionally convertible loans by a body corporate, which according to sources, is none other than Reliance Ventures Ltd.
These new debentures are convertible into equity shares on a par at the option of the lender by giving three months notice.
The terms are in contrast to those on the zero coupon optionally convertible debentures used to fund these companies' purchase of RPL shares (later converted into RIL shares), which are convertible at the option of the borrowers at par after the expiry of 15 years from the dates of allotment of the debentures.
It is not known why RIL lent money to these four associate companies without reserving the right to keep the option to convert the debentures with itself. The directors of Reliance Ventures are said to be LV Merchant, Surendra Piparia and MD Sudharshan.
These are the people who can take a decision on whether Reliance Ventures will actually convert their zero coupon optionally convertible loans to the four companies, thereby making them subsidiaries of RVL and, in turn, RIL.
It is not clear how the four companies can be shown as 'persons acting in concert' with the promoters of RIL, when they have been funded, not by the promoters or their associates, but by loans made by a subsidiary of RIL -- in effect by the company itself.
