Reliance Mutual Fund’s Controversial Investment

Reliance Mutual Fund’s investment of Rs 2,850 crore in Additional Tier-1 (AT-1) bonds of YES Bank has come under scrutiny. Sources from the Enforcement Directorate (ED) suggest that this investment was part of a suspected quid pro quo arrangement. Unlike regular bonds, AT-1 bonds lack a maturity date, meaning investors do not receive their principal back but benefit from a higher interest rate indefinitely. However, these bonds can be converted into equity or written off entirely by the bank if necessary. In this case, the bonds were written off, and the funds were allegedly siphoned off, impacting mutual fund investors.

Investigations by ED and CBI

The Central Bureau of Investigation (CBI) is also probing this matter. According to ED sources, an investigation based on information from the Securities and Exchange Board of India (SEBI) revealed that Reliance Infrastructure diverted substantial funds disguised as inter-corporate deposits (ICDs) to Reliance Group firms through an undisclosed related party referred to as ‘C’ company. These ICDs are essentially loans between companies. Reliance Infrastructure reportedly did not disclose ‘C’ company as a related party to bypass necessary approvals from shareholders and audit committees, potentially circumventing legal checks on related party transactions.

Financial Implications and Asset Transfers

Investigators discovered that Reliance Infrastructure took a significant financial hit, with a haircut of Rs 5,480 crore, receiving only Rs 4 crore in cash. Approximately Rs 6,499 crore was settled through asset transfers and economic rights assignments, primarily involving non-operational discoms with little chance of recovering the amount. The total loan diversion is estimated to exceed Rs 10,000 crore.

Regulatory Filings and Market Impact

Earlier today, over 35 premises in Mumbai linked to 50 companies and 25 individuals were searched under the Prevention of Money Laundering Act (PMLA). Despite these developments, Reliance Power and Reliance Infrastructure stated in regulatory filings that the ED’s actions have had “absolutely no impact” on their business operations or stakeholders. They attributed media reports to allegations concerning transactions over a decade old involving Reliance Communications Limited (RCOM) or Reliance Home Finance Limited (RHFL). Following the ED raids, shares of Reliance Power and Reliance Infra fell by 5%, reaching their lower circuit limits.