What Reliance Industries’ Annual Report Says About Related-Party Transactions

Reliance Industries Ltd. will seek shareholders’ nod for all its material related-party transactions at its annual general meeting on Aug. 29.

The approval sought is for the financial year ending March 2023, and subsequent four years, according to its latest annual report.

Related-party transaction disclosures offer an insight into the inter-dependence of billionaire Mukesh Ambani-controlled RIL and its joint venture partners and subsidiaries. It also provides information on agreements between its material subsidiaries such as Reliance Jio Infocomm Ltd. and Reliance Retail Ltd., among others.

It's the first such detailed disclosure of related-party transactions by Reliance Industries. It is mandatory for Indian companies to seek shareholder approval of such transactions from the ongoing financial year.

Reliance, in its 2021-22 annual report, disclosed that all related-party transactions of the company and its subsidiaries are at an arm’s length and in the ordinary course of business. Such transactions have been approved unanimously by its audit committee comprising independent directors.

These transactions between subsidiaries, it said, are for:

• Supply of goods and services by leveraging expertise and skills acquired in various fields such as logistics services, managed IT services, engineering, procurement, construction and project management services.

• Financial transactions of making investments, granting loans and giving guarantees.

According to JPMorgan, the key details on related-party transactions between the various subsidiaries of RIL (Jio, Retail, Reliance Property & Management Services) is a positive. But it’s too early to say if the increased disclosures on the large transactions between the subsidiaries are a step on the road to the listing of these businesses, it said in a report.

Here are the related-party transactions disclosed by RIL:

Reliance BP Mobility

It's a petroleum product retailing joint venture with BP Plc, with RIL holding 51%.

RIL estimates sales to the JV worth Rs 68,300 crore in FY23 and up to Rs 1,33,900 crore in each of the four subsequent financial years from FY24-27.

The pricing of goods is based on trade parity. Meaning that’s the same price at which RIL sells these products to independent oil marketing companies on a wholesale basis.

India Gas Solutions

It’s an equal joint venture with BP for sourcing and sale of natural gas in India. India Gas Solutions Pvt. procures natural gas from RIL-BP’s KG-D6 and other fields via an e-auction along with other buyers. It has a long-term supply agreement with RIL for natural gas on a cost-plus-margin basis.

The price of natural gas or LNG varies on the basis of international gas prices and the rupee-dollar exchange rate. RIL estimates to sell Rs 3,200 crore worth of gas in FY23 and up to Rs 4,100 crore each year between FY24 and FY27.

RIL is expected to buy gas for its captive consumption worth Rs 1,900 crore in FY23 and up to Rs 3,200 crore in the four subsequent years.

Reliance Sibur Elastomers

It’s a joint venture with Sibur, with RIL holding 74.5%. The JV is into setting up integrated butyl rubber plant and halo butyl rubber plant at Jamnagar. RIL supplies isobutyl—the feedstock for this plant.

RIL estimates sale to the JV at Rs 2,600 crore in FY23 and up to Rs 3,400 crore for each of the subsequent four financial years. It also estimates that it will purchase from the JV to the tune of Rs 1,200 crore in FY23 and up to Rs 1,900 crore for the next four fiscals.

The JV will commence operations in FY23.

Jio Platforms

RIL holds a 66.43% stake, Google Llc and Facebook own 17.71% stake and other investors hold the rest. Jio Platforms Ltd. provides managed IT services and internet data centre services to RIL and its subsidiaries and their step-down units.

RIL estimates that the monetary value of managed IT services provided by JPL to the parent to be Rs 1,500 crore in FY23 and up to Rs 3,200 crore in each of the subsequent four years.

The value of data centre services provided to RIL will be Rs 1,900 crore in FY23 and up to Rs 4,600 crore between FY24 and FY27.

Reliance Jio Infocomm

The telecom service provider is a step-down subsidiary of RIL and a subsidiary of Jio Platforms.

RIL provided guarantees to Reliance Jio, while Jio provides telecom services to RIL.

RIL estimates to provide guarantees worth Rs 2,100 crore to Reliance Jio in each of the five fiscals, including FY23. It will seek telecom services worth Rs 200 crore in FY23 and up to Rs 320 crore in the next four years.

It also has two related-party transactions with promoter and promoter group companies.

Sikka Ports & Terminals

Sikka Ports provides captive port infrastructure to RIL’s Jamnagar complex. It handles exports or imports of crude, petroleum and petrochemical products through marine route. The company estimates the monetary value for services at Rs 3,900 crore in FY23 and Rs 9,100 crore each year between FY24 and FY27.

Jamnagar Utilities & Power

The company supplies electricity, steam and process feed water to RIL’s refineries and petrochemical plants, while RIL provides fuel and other utilities to the power company. Jamnagar charges a fixed amount for conversion. Jamnagar Utilities is expected to invoice Rs 5,200 crore per annum for the next five years, while it will offtake Rs 500 crore of fuel per annum from RIL.

Reliance Jio And Reliance Retail

Reliance Retail is the master distributor for Reliance Jio’s telecom services. Jio sells recharge vouchers for its mobility and fibre services to Reliance Retail on principal-to-principal basis, which in turns sells them to distributors, own stores, online and other channels. Reliance Retail also undertakes channel distribution, marketing and promotional activities including KYC of customers.

RIL expects the monetary value of sale of recharge vouchers by Jio to Reliance Retail at Rs 1.05 lakh crore in FY23, and up to Rs 2.10 lakh crore each year for the next four financial years. The monetary value of channel distribution and marketing is expected at Rs 6,300 crore in FY23 and at up to Rs 15,300 crore every year between FY24 and FY27.

The company said the agreements between Jio and Reliance Retail for these transactions are subject to due diligence by investors in Reliance Retail Ventures Ltd. and Jio Platforms, including Facebook and Google.

Reliance Retail And Reliance International

Reliance Retail is a step-down subsidiary, while Reliance International is a wholly owned subsidiary based out of Abu Dhabi.

Reliance International imports agricultural and other retail products from international markets and supplies agricultural and other retail products to Reliance Retail. It also exports agricultural and other retail products of Reliance Retail.

RIL expects Reliance Retail’s imports from the Abu Dhabi arm at Rs 6,300 crore in FY23 and up to Rs 32,700 crore in each of the four years between FY24 and FY27. Reliance Retail expects exports worth Rs 3,900 crore in FY23 and up to Rs 9,100 crore in the next four fiscals.

Jio Platforms And Reliance Retail

The monetary value for FY23 is estimated to be Rs 2,400 crore and up to Rs 5,300 crore in each of the four subsequent financial years. Services provided by Reliance Retail to Jio Platforms are estimated at Rs 100 crore in FY23 and Rs 300 crore in the next four fiscals.

Jio Platforms And Reliance Jio

Reliance Jio is the subsidiary of Jio Platforms. The monetary value for FY23 is estimated to be Rs 2,100 crore and up to Rs 8,200 crore in each of the four subsequent financial years.

Reliance Retail Ventures and Reliance Retail

Reliance Retail Ventures is the holding company of Reliance Retail and provides warehousing and logistics services, employing third-party service providers for offering some of these services.

It provides warehouse management system, services for unloading of goods, scheduling inbound shipments, delivery of goods for dispatch and general merchandise warehousing services. RRVL charges for these services at cost plus margin.

The monetary value of warehousing, logistics and allied transactions between RRVL and RRL is estimated at Rs 15,200 crore in FY23 and up to Rs 75,000 crore in each of the four years between FY24 and FY27.

Also, the transfer of resource from RRVL by way of loans, investments in securities, debt instruments, advances and guarantees at any point in time from FY23-27 is estimated to be about Rs 25,000 crore.

Reliance Retail Ventures and Reliance Brands

Reliance Retail Ventures holds an 80% stake in Reliance Brands. It invests by subscribing or purchasing securities/debt instruments and/or provides loans, advances, and guarantees to Reliance Brands for business purposes.

The monetary value of Reliance Retail Ventures' investments through subscription or purchase of securities, debt instruments and/or by providing loans, advances, and guarantees to Reliance Brands is estimated at Rs 1,900 crore in FY23 and up to Rs 2,900 crore in each years between FY24 and FY27.

As on March 31, 2022, the outstanding value of such investments and loans was Rs 4,153 crore.

Reliance Projects And Property Management Services

It is one of the biggest infrastructure providers to various Reliance subsidiaries.

RPPMSL provides execution of engineering, procurement and construction works and sale and supply of assets/materials, along with fit-outs for all the retail stores across formats.

It also provides business support services, including renting of store premises, operation and maintenance and security. In case of business support services, the pricing is based on the percentage of revenue earned by Reliance Retail, and for other services pricing it's on a cost-plus-margin basis.

With Jio Platforms

Jio Platforms is expected to provide services to Reliance Projects worth Rs 1,700 crore in FY23 and up to Rs 3,000 crore each year between FY24 and FY27. Reliance Projects will provide services worth Rs 400 crore in FY23 and up to Rs 700 crore in each of the four fiscals.

With Reliance Retail

The monetary value of transactions for execution of EPC works, store fit-outs, business support services provided by Reliance Projects to Reliance Retail and allied transactions is estimated at Rs 28,500 crore for FY23 and up to Rs 56,200 crore each year between FY24 and FY27.

With Reliance Retail Ventures

The monetary value of transactions for execution of EPC works, store fit-outs and business support services is worth Rs 11,800 crore in FY22-23 and Rs 23,300 crore for each year between FY24 and FY27.

With Reliance Jio Infocomm

The monetary value of transactions is estimated at Rs 11,000 crore in FY23 and up to Rs 19,200 crore each year between FY24 and FY27.