The Hindu : Front Page : RcoVL approves reorganisation of ownership structure

Online edition of India's National Newspaper
Monday, Mar 13, 2006

Front Page

Front Page

RcoVL approves reorganisation of ownership structure

Special Correspondent

Will be achieved through a share swap only and would not involve any cash outgo

MUMBAI: The Board of Reliance Communications Ventures Ltd. (RCoVL), India's leading integrated communications services company and a member of the Reliance-Anil Dhirubhai Ambani Group, on Sunday approved a re-organisation of the ownership structure of all its major operating companies — Reliance Infocomm Ltd. (RIC) Reliance Communications Infrastructure Ltd. (RCIL) and Reliance Telecom Ltd. (RTL) — valued at Rs. 61,000 crore.

The re-organisation has been proposed within five trading days of the listing of RCoV. "The proposed reorganisation completely transforms this legacy structure and gives RCoVL 100 per cent ownership of all operating companies, assets and franchises," said a press release issued by RCoVL. The re-organisation would be achieved through a share swap only and would not involve any cash outgo. The proposed scheme of re-organisation would be prospective and take full effect from April 1, 2006.

"On completion of the reorganisation, RCoVL will become a major operating company, with over 19 million individual and enterprise customers. This is achieved by the proposed merger of RIC with RCoVL. In addition, RCoVL will have three principal wholly-owned operating subsidiaries, RTL, RCIL and FLAG Telecom."

Commenting on the proposed re-organisation, Anil D. Ambani, chairman, RCoVL, 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."

Explaining the rationale behind the proposed re-organisation, RCoVL said it would deliver substantial benefits to RCoVL and its over two million shareholders. This included: aligning the interests of all shareholders in a single listed entity; achieving a simple and transparent ownership structure for all RCoVL businesses; eliminating areas of potential conflict of interest and related party transactions; creating synergies by consolidating ownership; establishing a single currency for the Reliance - ADA Group's communications services businesses; allaying concerns over possible multiple listings of group companies; unlocking and maximising value for the benefit of over two million shareholders.

The proposed re-organisation is based on independent valuations provided by two reputed international firms, KPMG and JM Morgan Stanley. Trammell Crow Meghraj Pvt. Ltd. has advised on the property valuation. The legal advisers to the proposed re-organisation are Mulla & Mulla & Craigie Blunt & Caroe. RCoVL's existing equity shares will continue to trade normally on the stock exchanges, with no impact on liquidity at any point of time during the proposed re-organisation, RCoVL informed.

The proposed re-organisation will be implemented through an appropriate scheme of arrangement under Ss. 391 to 394 of the Companies Act, 1956, involving issuance of fully paid up equity shares of Rs. 5 each of RCoVL to the respective transferors as consideration for the proposed acquisition and cancellation of cross-holdings and will be subject to all necessary permissions and approvals, including that of shareholders, lenders, stock exchanges, High Courts, regulatory authorities, etc.

"RCoVL's existing ownership structure, which is a legacy arising from the period prior to [the] restructuring of Reliance Group, is inefficient and considerably dilutes value for the company's over two million shareholders. A large number of domestic and global institutional investors have observed that the existing ownership structure is complex and sub-optimal," RCoVL said.

The fundamental and inherent drawback of the legacy ownership structure is that RCoVL does not own a majority stake in any of its operating companies — RTL, RCIL, and RIC — which comprise the nationwide optic fibre backbone and GSM and CDMA wireless, wireline, broadband, long distance and international voice and data businesses.

As a consequence, RCoVL also does not own a majority or controlling stake in any of its affiliates through which the full range of business activities is carried out, including inter alia, the global sub-sea cable network, Reliance WebWorlds, call centres and data centres. Further, "the existing structure positions RCoVL as a pure holding and investment company, with all attendant disadvantages including discount in public market valuations, constraints in resource mobilisation, and tax inefficiencies."

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