Reliance Communications Chairman Anil Ambani
Anil Ambani-promoted Reliance Infrastructure reported a net loss of Rs 3,301 crore for the quarter ended March 2019 compared with a net profit of Rs 134 crore in the corresponding period last year. The firm's auditors said they were unable to give an audit opinion on the annual results and also raised doubts about the company and some of its subsidiaries' ability to continue as a going concern.
The company took a one-time hit on exceptional expenses of Rs 8,481 crore, which was offset by a withdrawal of Rs 6,616 crore from general reserves and credited to the profit and loss account. In the absence of this transfer, the loss for the quarter and the full year would have been higher by Rs 6,616 crore.
The exceptional expense was related to defence business impairment, invocation of pledge shares, and loss at its power subsidiary, according to the company. The company wrote off its entire investment in Reliance Naval and Engineering, which was a non-performing asset when RInfra acquired it in 2016. RInfra sees potential to write back this investment upon debt resolution after the new Reserve Bank of India circular.
“We were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these standalone/consolidated annual financial results,” auditors BSR & Co and Pathak HD & Associates said.
The auditors referred to investments of Rs 7,083 crore comprising inter-corporate deposits, and other corporate guarantees of Rs 1,775 crore that the company has extended, including certain related parties to the company. They added, “According to the management, these amounts have been mainly given for general corporate purposes and towards funding of working capital requirements of the party which has been engaged in providing engineering, procurement and construction services primarily to the company and its subsidiaries and its associates.”
However, the auditors were unable to obtain sufficient appropriate audit evidence about the relationship between the two parties.
The auditors also flagged the depreciation policies of RPower’s subsidiaries, which was a departure from IndAS. If this were to be considered, the share of loss of subsidiaries would have gone up by Rs 166 crore. RInfra said RPower had been advised by reputed legal and accounting professionals that the IndAS norm was not applicable to RPower.
The auditors have further raised a going concern on RInfra, Reliance Naval and Engineering, the company’s Mumbai metro subsidiary, and a few other subsidiaries. On RInfra at the standalone level, the auditors added, “Relating to losses incurred during the year and certain loans for which the company is guarantor indicate that a material uncertainty exists that may cast significant doubt on the company's ability to continue as a going concern.”
There existed a material uncertainty that might cast significant doubt on Reliance Naval's ability to continue as a going concern, they added. The auditors said the statutory auditors of the metro subsidiary had commented on the material uncertainty related to going concern in respect of the Mumbai metro company.
Others in the going-concern list include subsidiaries like TD Toll Road, GF Toll Road, Delhi Airport Metro Express, BSES Kerala Power, RPL Photon, RPL Sun Technique and RPL Sun Power. GF Toll Road was also classified as a non-performing asset in March.
In the company disclosures for the quarter, RInfra said it had terminated the concession agreement for its Kandla Mundra Road Project in May, on account of material breach and event of default under the provisions of the concession agreement by National Highways Authority of India (NHAI). The company expects a termination payment of Rs 1,205.47 crore.
The company said it was awaiting final adjudication orders on claims of over Rs 30,000 crore, of which Rs 8,000 crore had been won or were at an advanced stage.