industry

Auditors being ‘irrational’ for doubting Reliance infrastructure’s business: Punit Garg


MUMBAI: Reliance Infrastructure’s chief executive officer has dismissed auditors’ concerns over its business as “irrational” after the company reported its biggest loss ever, and said the company is confident of turning debt-free in 2020.

“There is a mismatch of cash flow right now, but we will be debtfree once we exit our road projects. We will be monetising assets worth Rs 3,000 crore before March 2020. We had debt of more than Rs 19,000 crore, which we have managed to reduce to less than Rs 6,000 crore in FY19; by next year we hope to be debt-free. We are on the right track,” Punit Garg, executive director and chief executive officer, told ET.

The auditors, BSR & Co. LLP and Pathak HD & Associates, raised questions about Reliance Infrastructure’s ability to continue as a going concern after the Anil Ambani-led company reported a net loss of Rs 3,301 crore in the fourth quarter of FY19, as it undertook impairment and write-offs totalling over Rs 8,500 crore.

The losses would have been higher had the company not offset these one-time costs with Rs 6,616 crore withdrawn from general reserves.

Making things worse, the auditors added a disclaimer saying that they do not have sufficient audit evidence to determine if the result gives a “true and fair” view of the losses and income.

“Auditors are behaving very differently now and we are surprised at their irrational behaviour. It is an overhang of what has happened in the IL&FS case and the questions being asked to auditors today,” Garg said.

The IL&FS financial crisis has highlighted lapses by auditors and put them under the scanner.

Reliance Infrastructure deferred its board meeting for annual results twice, an unusual act by a listed company, which the market viewed as a sign of bad news. Sure enough, when the company finally reported the earnings close to midnight on Friday, there were more reasons to worry about the group.

It reported losses due to exceptional expenses arising from invocation of pledged shares, losses in Reliance Power and a write-off of its entire Rs 4,500 crore investment in Reliance Naval and Engineering which it acquired in 2016.

Reliance Infrastructure’s auditors noted that there is “material uncertainty” that casts “significant doubt” on the group’s ability to continue as a going concern, due to the group and its associates and joint venture incurring losses. Garg said selling assets would cut debt and help the company exit businesses, such as road projects, which cause stress. Therefore, the auditors’ concerns are unfounded.

The Anil Dhirubhai Ambani Group, which is dealing with huge debt of over Rs 1 trillion amidst muted cash flow and eroding network, has had a tough month on the bourses so far as shares have plummeted to their lowest market capitalisation.

The group has been battling financial stress across businesses.

Its telecom company, Reliance Communications, is facing insolvency, while financial services arm Reliance Capital is struggling with liquidity issues and Reliance Power has reported losses due to impairments and write-offs worth over Rs 4,000 crore.

PricewaterHouseCooper (PwC) also resigned as the statutory auditors for Reliance Capital and Reliance Home Finance on June 11, citing ‘prevention of exercising independent judgment’, ‘impairing its independence’ and ‘not in a position to complete the audit’.

To calm investors, Reliance Group Chief Anil Ambani said on June 11 that the group was working to meet its debt obligations and creating shareholder value. He blamed financial institutions for not extending support, huge claims stuck in arbitration, and the “most challenging financial environment witnessed in the country in decades” for the challenges the group faced.

In the case of Reliance Infrastructure, the auditors’ report is speckled with remarks and disclaimers.

The auditors have said that accounting standards were not followed while calculating depreciation in Reliance Power. If it had been done, then losses would have been higher, they said.

They also noted that the company has investments and various recoverables worth Rs 7,083 crore with entities that were doing engineering, procurement and construction jobs for the company and has extended corporate guarantees worth Rs 1,775 crore in favour of these entities during the year. The auditors said they did not have sufficient and appropriate audit evidence about the relationship of these companies with Reliance Infrastructure, or the reason behind these transactions, and so they could not assess their implications.

“In EPC industry, it is a norm to give advances to subcontractors and extend guarantees. We have undertaken a provision, since there have been delays in some projects due to issues faced by the industry. If the auditors are questioning our loans to subcontractors now, I would question them on why it was not an issue in earlier quarters; it was there earlier too,” Garg said.

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The company has already sold its “cash cow”, the Mumbai power distribution business to the Adani Group and has plans to exit its road development business to focus on the engineering and construction business, which has an order book worth Rs 28,640 crore.

It still has a claim on Rs 22,000 crore of regulatory assets recognised and under approval from its power distribution business, and has another Rs 8,000 crore stuck in arbitration. “We are happy that there is a growth in our ongoing businesses.

We have set off the entire investment of Rs 4,500 crore in Reliance Naval, there is a possibility of writing it back when debt resolution process is completed,” Garg said.





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