Auditors Unsure If Reliance Power, Subsidiaries Can Stay Afloat
Auditors questioned ability of Reliance Power and its subsidiaries to stay afloat as they face losses, problems due to liquidity.
Auditors have questioned the ability of Reliance Power Ltd. and its subsidiaries to stay afloat as they face losses and problems due to liquidity.
“A material uncertainty exists that may cast significant doubt on the Group's ability, particularly in relation to Rajasthan Sun Technique Energy Private Ltd. and Samalkot Power Ltd. to continue as a going concern,” BSR & Co. LLP and Pathak HD & Associates, auditors to the distressed power producer, said in an audit report. “Our opinion isn’t modified in respect of this matter.”
The Anil Ambani group company reported its biggest quarterly loss of Rs 3,560 crore in the three-month period as it wrote off investments in gas-based and solar generation units. The impairments largely stemmed from lack of gas for its Samalkot Power and unviable solar unit Rajasthan Sun Technique.
Reliance Power's current liabilities for the year ended March were Rs 12,249 crore higher than its current assets. What that means is it wouldn’t be able to clear its short-term dues even if it were to sell all its current assets.
Based on the audit reports of the company’s subsidiaries and joint ventures, BSR & Co. and Pathak Associates raised doubts about the ability of the parent and the subsidiaries to operate as going concerns.
Auditor Observations
Rajasthan Sun Technique Energy
Severe liquidity crunch, loss, continuous default and eventual dependence on the parent for financial assistance led the auditor to raise doubts on the solar producer's ability to remain a going concern.
The subsidiary reported a loss of Rs 1,485 crore in the year ended March. Its current liabilities exceed current assets by Rs 1,370 crore, the auditors disclosed as part of the review.
The company, based on valuation by independent experts, wrote off its property, plant and equipment worth Rs 1,419 crore.
Samalkot Power
Samalkot Power, a gas-based power generation unit, depends on its subsidiary to execute a project in Bangladesh to generate cash flow and to find a customer to dispose of its assets worth Rs 1,600 crore, the auditors said in the report. The company, based on valuation by independent experts, wrote off property, plant and equipment worth Rs 276.4 crore.
U.S. Exim Bank issued notice to Samalkot Power on April 2, recalling outstanding loans and the company is in discussions over restructuring them, it said. The auditor, citing this situation and its dependence on the parent, raised doubts on its ability to stay as a going concern.
Auditor Qualifications
Depreciation
The auditors noted that the methods to calculate depreciation in the final consolidated statement of Reliance Power and standalone statement of subsidiaries were different, which didn’t comply with accounting standards. Had the methods been uniform, the company would have reported Rs 501.91 crore more loss for the year ended March, the auditors said.
Reliance Power, in notes to the financial statement, disagreed and said it had received opinion from a reputed legal and accounting firm that validated their practice.
Related-Party Transactions
The auditors said the company didn’t take audit committee approval for inter-corporate deposits worth Rs 403 crore received from related parties, thereby not complying with regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements).
Reliance Power, in its notes, said it didn’t classify the lending entities as related parties as it doesn’t have influence on the directors and/or operations of the company that lent money. It said the audit committee ratified the transaction on June 8 with auditor qualification.
Other Concerns
Reliance Power, in response to doubts raised by the auditor, said it expects to generate sufficient cash on time by selling gas-based power plant equipment, realisation from regulatory arbitration claims and sale of other assets from certain subsidiaries. It’s also confident of restructuring loans. That, it said, would help repay liabilities.