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Nikkei Markets

PWC quits as auditors of two Anil Ambani companies citing dispute over disclosures

Reliance Capital, Reliance Home Finance shares tumble

MUMBAI (NewsRise) -- The auditors of Anil Ambani's Reliance Capital and its unit resigned amid disputes with the managements over certain transactions, triggering concerns about the group'sdisclosure norms at a time when it struggles to repay debt.

Price Waterhouse & Co (PWC) resigned as the statutory auditor for Reliance Capital and unit Reliance Home Finance with effect from June 11, the companies said in separate statements to stock exchanges.

PWC said it did not receive a satisfactory response to its queries on certain observations and transactions as part of the ongoing audit for the fiscal year 2018-2019, according to the filings. These queries, "if not resolved satisfactorily, might be significant or material to the financial statements," the auditor said.

The company did not convene an audit committee meeting within the expected time, and stated that it might initiate appropriate legal proceedings against the firm, PWC was cited as saying. These actions have prevented PWC from performing its duties as statutory auditors and exercising independent judgment in making a report to the members of the company.

The companies disagreed with the auditors' reasons for quitting and said they had duly responded to the various queries and furnished all requisite and satisfactory details.

The auditors' resignation comes barely days after a report from Risk Event-Driven and Distressed Intelligence pointed to "unusual" lending arrangements in the Reliance Capital group that indicated diversion of funds to what it called "box companies," which have no ownership links to group companies.

The number of loans to such box companies pointed to an outstanding total loan amount of 137 billion rupees ($1.97 billion), while Reliance Capital reported related-party loans of only 11.8 billion rupees in its annual report for the fiscal year 2018, the report said. When companies employ this structure, the auditors looking at the books find it difficult to ascertain the true beneficiaries, it added.

The Reliance Anil Dhirubhai Ambani group, with businesses ranging from telecommunications, power, financial services, infrastructure, and defence, has been seeking to reduce its billions of dollars of debt through stake sales and asset disposals. Earlier this year, the group's flagship Reliance Communications filed for bankruptcy proceedings to resolve its $7 billion of debt.

In March, Reliance Capital said the company plans to cut down its debt by 100 billion rupees to 120 billion rupees over the next three to four months and will sell its stakes in units Reliance Nippon Asset Management and insurance venture Reliance General Insurance.

The group's woes have been worsened by a credit crunch that has gripped the south Asian nation partly due to lending curbs imposed on banks that are saddled with bad loans totaling about $190 billion. The crisis at leading shadow bank Infrastructure Leasing & Financial Services, which missed payments on many debt obligations, has aggravated the issue by causing a liquidity crunch and raising short-term borrowing costs.

On Tuesday, group Chairman Anil Ambani said "unwarranted rumour mongering" and "speculation," have caused grave damage to the group's stakeholders. "The group is fully committed to meeting all future debt servicing obligations in a timely manner, through further asset monetization plans that are already at various stages of implementation," he said in a conference call with reporters.

Ambani said the group has made aggregate debt servicing payments of over 350 billion rupees over 14 months between April 2018 and May, and blamed a non-cooperative financial system for the group's inability to further pare down its debt.

Shares of Reliance Capital lost 6.8% in Mumbai trading on Wednesday, while Reliance Home Finance closed down 4.2%. The benchmark S&P BSE Sensex lost 0.5%.

--Dhanya Ann Thoppil

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