Mukesh Ambani will simplify Reliance holding structure

Reliance Industries Ltd (RIL) will embark on simplifying its corporate structure, including its subsidiaries and holding companies, in an attempt to keep it “as simple as it can”, Mukesh Ambani, chairman, said on Friday.

The myriad structures that RIL hosts are a complex web of cross-holdings that only few within the conglomerate can unravel.

For the record, RIL has 68 promoter group companies with many among them holding as little as 100 shares, 123 subsidiaries and nine associate companies.

“We will always try to simplify our subsidiaries’ structure and cross holdings and you’ll see this unfold in the coming years as we embark to make it as simple as we can,” Ambani said.

Analysts, however, are not so sure. “I don’t know how it (reducing subsidiaries) can be done,” said S P Tulsian, an analyst who closely tracks the company. “Would it mean hiving off the subsidiaries and listing them separately?” he asked.

But Ambani had earlier clarified to shareholders that there are no plans for listing any of RIL’s subsidiaries in the near term.

Investors were, however, disappointed that the chairman did not address concerns on the falling output from the D6 block in the Krishna-Godavari basin. Output has slipped due to technical problems to about 52 million metric standard cubic metres a day (mmscmd) from 60 mcmd in 2010 and is woefully short of a target of 80 mmscmd.

At the annual general meeting of the company here on Friday, while responding to a shareholder query, Ambani said after receiving government approvals for BP-Reliance partnership, “KG-D6 reservoir will be jointly assessed to address technical issues in ramping up production.” He expected the deal to be approved in the next few weeks but did not address the specifics on oil and gas subsidies and lower output of gas.

Shares of RIL ended at Rs936.15, down 1.65%, on the back of a lack of clarity on the falling output. RIL was the second-biggest loser in the 30-share benchmark index, which shed 0.64% to 18376.48.

“There is disappointment. This (falling output of D6) is a big concern,” Tulsian said.

The chairman’s speech was also silent on the group’s plans to set up power generation units, which a senior official at RIL later clarified was because the company had no plans to enter the power sector.

Responding to shareholders, Ambani declared that the company would attain a “debt-free status” on a net basis by the end of financial year 2011-12, a step many believe will allow India’s biggest company by market capitalisation to expand through the inorganic route.

Analysts were sceptical and brushed that away, saying if the company embarks on acquisitions it would have to opt for more debt.

On production issues at D6, he said RIL and BP Plc will jointly address this.

Ambani told shareholders RIL planned to invest aggressively in retail and would launch a ‘cash-and-carry,’ or wholesale business.

“RIL is endowed with a strong balance sheet and depth of talent,” Ambani said, adding that the company was “uniquely placed to pursue multiple growth opportunities.”

The company is also looking to expand in sectors such as telecom, retail, financial services and hospitality. In the late 70s, it was with textiles, in 80s, it was with polyester, in the 90s it was with petrochemicals and in the first decade of this century, it has been oil and gas and refining.

“In the beginning of the second decade of this century, Reliance
envisages a new wave of growth through a digital and consumer ecosystem,” Ambani said. But energy will remain company’s core business.