Mukesh Ambani's East West Pipeline begins its second round of restructuring

Mukesh Ambani-owned East West Pipeline, earlier known as Reliance Gas Transportation Infrastructure, has initiated its second round of restructuring of the company by hiving off its investment division to Sikka Ports & Terminal, another personal investment company of the Reliance Industries chairman.

In 2012-13, East West Pipeline, which connects the Krishna-Godavari basin to Gujarat with a 1,386 km pipeline, transferred its investments to another personal investment company of Mukesh Ambani, Reliance Industries Holdings Pvt Ltd, under a complex restructuring of all Ambani’s personal entities, which entailed impairment of Rs 158 billion, mainly in notional losses.

An email sent to Reliance Industries did not elicit any response.
 

Insiders, however, said the move would involve reduction of paid-up capital in the pipeline company as well. The board of East West Pipeline cleared the demerger proposal on Wednesday.

A petition will now be filed in the Ahmedabad Bench of the National Company Law Tribunal to get approval of the scheme from the company’s creditors.

By hiving off the investment division, Reliance Industries could sell its stake in East West Pipeline, which has only the pipeline business, according to a banker. The port, pipeline and power companies are Ambani’s personal investments, which cater to the needs of the oil and petrochemical refineries of BSE-listed Reliance Industries Ltd.

The pipeline company, however, has been a laggard among RIL group companies, mainly due to the significant drop in production of gas from the company’s Krishna-Godavari block over the last few years, which impacted cash flows. In the first half of 2017-18, the pipeline firm made a net loss of Rs 4.54 billion on a revenue of Rs 3.64 billion.

In the five years since 2012, Ambani’s ultimate holding company, Reliance Industries Holdings Pvt Ltd, invested Rs 48.26 billion and Rs 80 billion in in the pipeline company’s subordinated debt and preference shares, respectively, as on March 31, 2018, resulting in a positive net worth for the company. These funds were used mainly to repay East West Pipeline’s bank debts of around Rs 115 billion.

Sikka Ports & Terminal Ltd, which handles a major part of RIL's refining and petrochemicals volumes, clocked a net profit of Rs 4.81 billion on a revenue of Rs 18.12 billion in the first half of 2017-18. Sikka Ports was earlier known as Reliance Ports and Terminals.  

These companies are ultimately held by Reliance Industries Holdings Pvt Ltd, which owns 754 million shares of RIL, and has a debt of Rs 220 billion as on March 31 this year.

Since the restructuring in 2012, these companies are showing improved financial performance with the power company even expanding its capacity. Reliance Utilities, which operates power plants at Jamnagar, Hazira, and Dahej, having a combined capacity of 1,200 megawatt (MW) of power, reported a profit after tax of Rs 3.88 billion on an operating income of Rs 20.97 billion in the first half of 2017-18.

PUSHING THE ENVELOPE

• The pipeline firm has been a laggard among RIL group companies 
• In the H1 of 2017-18, the pipeline firm made a net loss of Rs 4.54 bn on a revenue of Rs 3.64 bn
• In the five years since 2012, Reliance Industries Holdings invested Rs 48.26 bn and Rs 80 bn in the firm’s subordinated debt and preference shares, respectively