Reliance MF writes off Rs 56 cr on UK, Malaysia arms

Plans to scale down operations in both places

Reliance Capital Asset Management, the second largest mutual fund by assets under management, has taken a hit of Rs 55.6 crore on its profit and loss statement on a write-off related to two overseas subsidiaries. According to the company’s financials, the amount is equal to nearly a fifth per cent of its profit before exceptional items and tax.

The company’s annual report noted that its wholly owned foreign subsidiaries in Malaysia and the United Kingdom had been incurring losses over the past few years. It had so far invested an amount of around Rs 63.9 crore in these two subsidiaries.

“…Considering the continuing losses incurred and not-so-very positive business prospects in future, the operations of these two subsidiaries are proposed to be scaled-down,” said the company’s annual report. “…It has been decided to provide diminution in the value of these investments to the tune of Rs 55.6 crore (approx). Diminution is estimated to an extent of decrease in net worth of these two subsidiaries as on 31 March this year and the same is being disclosed as ‘exceptional item’ in the statement of profit and loss account for the financial year ended on March 31,” it added.

Diminution refers to value erosion in the assets of the company.  An email sent to a Reliance spokesperson last week did not receive a reply.

The UK subsidiary had also been running an advisory business in the Middle East, operating from Dubai. It had also commenced covering parts of Africa for providing wealth advisory through its Middle East operations, according to the annual report for the previous financial year.

The Malaysian subsidiary had been licensed to undertake Islamic Asset Management activities from the local securities market regulator. It managed assets of $90 million in FY12, according to company documents. It was also looking into the management of Sukuk portfolios, a form of Islamic fixed income.  Reliance continues to have two more overseas subsidiaries in Singapore and Mauritius. Assets under management in Singapore had crossed the $1-billion mark, with both equity and fixed income operations. The Mauritius subsidiary provides investment management services to India focused schemes.

The annual report also mentions change in shareholding, including the fact that EP Global Markets(Cayman) Limited sold 510,000 shares in the asset manager to Reliance Capital on August 14, 2012.

Reliance had average assets under management worth Rs 93,249 crore in the three-month period ending Septe-mber, according to data from industry body, the Association of Mutual Funds in India.

OVERSEAS SUBSIDIARIES BLEED RELIANCE MF:

* UK, Malaysian subsidiaries had been running losses

* UK subsidiary operated in wealth management space

* Malaysian company looked into asset management in line with Islamic principles

* They have now decided to scale down applications

* The parent company has taken a 56 crore hit on its profit and loss account