The Telegraph
Since 1st March, 1999
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Anil unveils telecom recast plan

Mumbai, March 12: The Anil Dhirubhai Ambani group today kickstarted the process of reorganising the ownership structure of all its telecom entities ' just six days after the holding company, Reliance Communications Ventures Ltd (RCoVL), listed on the bourses.

The board of RCoVL met here today ' without Anil Ambani participating in the best traditions of corporate governance since he was an interested director ' and decided to merge Reliance Infocomm Ltd, the mobile service provider, with the holding company.

It also decided to rejig the shareholding structures so that two other entities ' Reliance Telecom Limited (RTL) and Reliance Communications Infrastructure Limited (RCIL) ' become 100 per cent subsidiaries of RCoVL.

Significantly, the recast will raise the stake of the promoters ' Anil Ambani, his family and associates ' from 40.54 per cent to 63 per cent. But the company drew a veil of secrecy over the swap ratio, making it difficult to ascertain if the deal was beneficial for the existing shareholders.

The re-organisation will be prospective, and take full effect from April 1.

RCoVL holds 45.34 per cent in Reliance Infocomm at present. With a 31.32 per cent stake, Reliance Communications Technologies Ltd is the next biggest shareholder. RCIL holds 14.39 per cent, Ambani Enterprises Pvt Ltd has a 5.37 per cent stake and Panther Consultants Pvt Ltd owns 3.58 per cent. All of them will now get RCoVL shares.

RCoVL’s paid-up equity share capital will increase to 204.5 crore shares of Rs 5 each, aggregating to Rs 1,022 crore ($230 million) from Rs 611 crore once the recast is complete.

Based on the closing stock price of Rs 301 on March 10, its post-recast market capitalisation would stand at Rs 61,000 crore ($13.8 billion).

The merger of Reliance Infocomm into RCoVL will raise the valuation of the entity. The sharp rise in the promoters’ stake assumes even greater significance in the light of Anil Ambani’s statement on March 6 ' the day RCoVL listed on the bourses ' that the group intended to go all the way up to the government-mandated limit on foreign institutional investment (FII) of 74 per cent. Clearly, if they have to get that level, the promoters of RCoVL will have to offload a large chunk of their shareholding.

In a statement released after the board meeting, RCoVL said there would be no cash outgo and that all cross-holdings within the telecom group would be cancelled.

At present, RCoVL holds 45 per cent in RCIL and 35.60 per cent in RTL.

Ambani said, “The proposed re-organisation upholds the highest principles of transparency, fairness and corporate governance, and is a historic milestone in our endeavour to create the most valuable India-based global communications services company.”

RCoVL set a tentative time-line for various stages of the recast process. It expected the stock exchange to approve the scheme in 30 days, shareholders to clear it in 70 days, court sanction of the scheme in 100 days, and a filing with the registrar of companies in 120 days. If all goes to plan, the recast should be over by early July.

RCoVL said the existing ownership structure, which is a legacy arising from the period prior to restructuring of the Reliance Group, was inefficient, and considerably diluted value for the company’s shareholders.

It added that a large number of domestic and global institutional investors observed that the existing ownership structure was complex and sub-optimal.

Moreover, the existing structure positioned RCoVL as a pure holding/investment company, with all the attendant disadvantages that included discount in public market valuations, constraints in resource mobilisation, and tax inefficiencies.

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