Was Reliance Defence floated days prior to Modi's Rafale announcement? Will Anil Ambani's "personal sadness" persist?

Last Updated: Thu, Jul 26, 2018 15:04 hrs
Anil Ambani, Chairman of India's Reliance Communications, addresses a news conference in Mumbai

This may come up as a fresh hit to debt laden Reliance Communications chaired by Anil Ambani. The Rafale deal is back in limelight after the No-Confidence motion held last week. And along with discussions on Rafale, the deliberations will also focus into the Joint Venture that the French company entered with Reliance Defence.

Congress President Rahul Gandhi in his allegations has kicked up a storm. He said that the (parent) company which had a "debt of Rs 35,000 crore" benefited to the tune of Rs 45,000 crore by the Rafale deal signed by Modi Government.

Even as the details about this deal are awaited, a report published in the National Herald seems to have added to the confusion. The report, suggests exposes by delving into data made available from the ministry of corporate affairs. This story suggests that Anil's Reliance Defence may have been incorporated just ten days prior to PM Narendra Modi flagging the ambitious Rafale procurement.

The National Herald report finds that Reliance Defence was incorporated on 28th March 2015, just ten days prior to PM Modi's Rafale announcement. This, the story indicates something amiss.

Also, the report suggests that Ambani's defence company had floated it on a share capital of Rs 500,000, a number lower than the crores that the Rafale deal itself was supposed to be. Authorized capital of a company is the maximum amount of share capital that the company is authorized to issue to shareholders.

The Congress President had lashed out to his opponents claiming that a private company that had a debt of Rs 35,000 crores, "benefitted to the tune of Rs 45,000 crores" via the Rafale deal.

Gandhi had subsequently also asked the PM to explain to the country, why a Rs 45,000 crore contract was taken away from the state owned Hindustan Aeronautics Limited (HAL) and handed over to a "corporate friend" who had "never, ever built an airplane and had a debt of ?35,000 crore," in a reference to Anil Ambani.

He also suggested that Rafale aircraft price-hike was "magic".

He said, "The price of a Rafale aircraft negotiated by the UPA was ?570 crore. Modiji goes to France and does magic to jack the price to ?1,670 crore."

RCom, the debt-laden company run by Anil Ambani and listed on the stock exchanges, has either been reported as bleeding into losses or about to lose licenses. In a press release announcing its quarterly results, the company secretary said its first quarter net loss for quarter ending June 30, 2018 has shrunk by Rs 343 crores against Rs 19,776 crores in the previous quarter. The company said it was confident of resolving debt resolution processes, even as the release mentioned revenues of Rs 1008 crores (up from Rs 976 crores in the previous quarter).

There were speculative reports suggesting that the Department of Telecom had asked the company to either furnish bank guarantees or risk losing licenses. Licenses that were reported as assets for RCom. The company clarified to exchange houses that a Telecom tribunal was expected to resume hearing the case on 10th August.

This is not the first time that the Anil Ambani's name has cropped up with the Rafale deal as an allegation. Allegations were thrown in last year too. But Anil Ambani responded to these through a letter. In December 12 2017, Anil Ambani is learned of writing to Rahul Gandhi, and appraise him of the deal via a two page letter.

In the letter Ambani denies Gandhi's allegations. Here are excerpts from the letter:

Denying the role of the Government in the Rafale-Reliance joint venture, he says, "Not only do we have the necessary experience but we are also the leaders in several important areas of defense manufacture."

Reliance, he explains in the letter, had the largest shipyard in the private sector at Pipavav in Gujarat and was also enrolled in building five naval offshore patrol vessels for the Indian Navy and 14 fast patrol vessels for the Indian coast guard.

He said buying of 36 aircrafts manufactured in France was an inter-governmental agreement. "All 36 aircrafts are being manufactured in France and will be delivered on a 'fly away' basis from Dassault's manufacturing facilities in France to the Indian Air Force and no Indian company has any role to play."

Hinting at the joint venture, he said, "Dassault choose Reliance as its joint venture partner to meet the 'offset' or export obligation component of the deal and this was "an independent agreement between two corporate private sector entities and Governments had no role to play in this matter."

The Rafale procurement was aimed at buying of 36 fighter Jets, manufactured by French company- Dassault Aviation. The French company entered into a joint-venture with Anil Ambani's Reliance Aerostructure into a 51:49 JV to meet offset obligations. The Rafale deal includes a 50% offset clause, that ensures 50% of Rafale's deal amount to be invested in the Indian ecosystem. As such France is expected to infuse 30% of production costs into India's military aeronatics related research programmes and 20% into local production of Rafale components. This, according to a 2017 story published in The Hindu Business Line .

The JV with Dassault would significantly contribute to high technology transfers, creation of thousands of jobs in India, impart valuable training and skill-sets to Indian engineers in aerospace/defence manufacturing sector, and also provide large scale business opportunities to hundreds of MSMEs, SMEs and start-ups in the country and will further enhance "our experience and skills", Ambani emphasized in his letter.

The letter addressed to Gandhi also makes a reference to Dhirubhai Ambani and the equations between the Ambanis and Gandhis.

Dhirubhai Ambani, he said, had built the world's largest integrated petrochemicals and refinery complex in India without formal education, experience and legacy. "You have to be given an opportunity to perform. It's not experience, but the mindset, dedication and the prupose, of a strong India that should engage us all."

Referring to statements made by Congress, including the ones made by Rahul Gandhi, Anil Ambani felt they had "saddened and hurt sentiments".

"Considering that my entire family and I, starting with my respected father, have had the privilege of enjoying a very respectful relationship with the Gandhi family over generations as well as the Congress party for the past more than four decades, these statements have saddened and hurt our sentiments," read his letter.

Except for the 8 month old letter, an official communication is yet awaited from Anil Ambani's communication team. An official confirmation could throw light about whether ADAG had prescient information about Rafale, days prior to the official announcement. Official communication could also shed light on the exact date of incorporation considering, Reliance Infra Ltd (another sister company) had already been reported of purchasing 17.66% of Pipavav Shipyard on 5th March 2015 for $ 130 million. This company had later been renamed into Reliance Defence and Engineering.

Here are a handful tweets related to the Reliance-Rafale deal.

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