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A debt default by Anil Ambani’s Reliance Infrastructure Ltd. brought into focus the poor financial health of at least two group companies: the operator of Mumbai’s first metro line and a naval shipbuilder.
Mumbai Metro One Pvt. Ltd. and Reliance Naval and Engineering Ltd. have been reporting losses for at least four years, according to their filings. Financial troubles eroded their net worth, and the naval shipbuilder has even sought a debt resolution from lenders.
And the two need the parent’s help. Auditors to Reliance Infrastructure, in a note to June quarter earnings, had said the companies—along with three other firms—can’t survive as “going concerns” without its financial support.
That added to the cash woes of Reliance Infrastructure, according to Crisil. The company has a “significant exposure” to the five subsidiaries and associates, it said in a July 31 note. The investments, according to the rating agency, affected the parent’s liquidity and weakened its financial risk profile.
Reliance Infrastructure defaulted on principal and interest payments on non-convertible debentures due on July 27. Its failure to meet obligations prompted rating agencies including Brickworks Ratings, Crisil Ratings and India Ratings & Research Ltd. to downgrade it to default.
The company, in an exchange filing, however, called the default “technical”, saying its Rs 18,800-crore deal to sell its Mumbai power business to Adani Transmission Ltd. is near closure. It plans to use the proceeds to repay loans.
To be sure, the core business of the construction and engineering firm has improved with its order book growing to Rs 36,660 crore as of June from Rs 5,960 crore in March last year. Yet, loans to group companies and associates remained high at around Rs 13,558 crore as on March 31, CARE Ratings said.
Reliance Infrastructure, in an emailed response to BloombergQuint, however, said the capex cycle of group subsidiaries and associates is complete and they won’t require further infusion. But it also added that the company is committed to providing necessary support to the metro operator.
Mumbai Metro One
Reliance Infrastructure owns 69 percent of Mumbai Metro One—that operates a nearly 12-kilometre stretch connecting eastern and western suburbs between Ghatkopar and Versova in India’s financial capital. Up to 4.2 lakh people take the metro every day.
Conditions indicate that a material uncertainty exists that may cast significant doubt on the metro operator’s ability to continue as a going concern, its auditor had said in notes to its March quarter earnings. Reliance Infrastructure’s auditor reiterated the concern in filings for the three months to June.
Mumbai Metro One’s liabilities exceeded its assets in the three months ended June, when it reported a loss of Rs 68.20 crore, according to the filings. And’s it been in the red since it began operations in 2014.
- For the year ended March 2018, liabilities exceeded its assets by Rs 973.6 crore and it reported a loss of Rs 238.3 crore.
- The company had reported a loss of Rs 273.5 crore in the year ended March 2017 as well.
Reliance Naval and Engineering
Reliance Infrastructure acquired managing control in Reliance Naval in 2016. The shipbuilder is one of the two private players in India competing for naval orders.
A global downturn in the shipbuilding industry and a delay in defence orders resulted in temporary financial constraints, the company said in its filing. Reliance Naval reported losses, its net worth eroded and secured lenders recalled loans, forcing it to seek a resolution plan, the company said.
“We are hopeful of the lenders agreeing to the plan of RNaval at an early date,” Reliance Infrastructure said in an emailed statement to BloombergQuint.
The shipbuilder’s short- and long-term debt stood at over Rs 5,300 crore as of March end. It ended 2017-18 and the quarter ended June with a consolidated loss of Rs 1,011 crore and Rs 347.1 crore, respectively.
The parent remains optimistic about the prospects in defence manufacturing sector, and said that it’s participating in several business opportunities in and outside India.
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