Crest Logistics: Mystery Firm That Owes Anil Ambani’s Loss-Making Reliance Infra Rs 7,000 Crore

Reliance Infrastructure Ltd. reported its worst quarterly loss ever in the three months ended March. But one more thing stood out in its earnings: a large amount due from a mystery firm.The Anil Ambani company, on a standalone basis, had investments and receivables worth Rs 7,083 crore outstanding from an “independent” engineering, procurement and construction firm, according to its stock exchange filing. That’s seven times its standalone revenue from operations for entire 2018-19.Reliance Infra has already provided for receivables worth Rs 3,972.2 crore from the EPC company over a period. In FY19 alone, it disclosed Rs 2,042.2-crore provisions and write-offs pertaining to this firm.Yet, for reasons not clear Reliance Infra has chosen not to name the EPC company. Auditors BSR & Co. LLP and Pathak H.D. & Associates said they were unable to obtain “sufficient and appropriate audit evidence” about the relationship of the company with Reliance Infra, or the reason behind the transactions and if the amount can be recovered.To be sure, Reliance Infra is not required to disclose more if it’s not a related party. But curiously, even that the Ambani company claims ignorance of.Its filing says, “In the absence of the financial statements of the EPC Company for the year ending March 31, 2019 which are under compilation it has not been possible to complete the evaluation of nature of relationship, if any, between the independent EPC Company and the Parent Company. Presently, based on the analysis carried out in earlier years, the EPC Company has not been treated as related party.”A BloombergQuint investigation, however, found several links between the EPC firm and the Ambani group.Analyses of past filings and visits to offices in Mumbai revealed that the construction contractor is a promoter of two other publicly listed Ambani companies. Not only that, his group directly owned it till about a decade ago, and the firm’s current owners have ties dating three decades back to the undivided Reliance empire.Here’s what BloombergQuint found…While not naming the EPC firm in the January-March filings, Reliance Infra said it:Holds less than 2 percent equity, debentures and preference shares of the EPC firm.Gave it advances and inter-corporate deposits.Had exposure to the firm in 2017-18 as well.According to the 2018 annual report of Reliance Infra:The only debentures Reliance Infra invested in belonged to Crest Logistics and Engineers Pvt. Ltd.It also owned 1.3 percent equity and preference shares of that private company.Reliance Infra also cited Crest Logistics as its major customer for EPC and contracting business.A review of Crest Logistics’ last filing, for 2016-17, with the Ministry of Corporate Affairs only confirmed these facts, substantiating that the unnamed firm mentioned in Reliance Infra’s filings is, indeed, Crest Logistics.BloombergQuint asked Reliance Infra to confirm this but it has yet to respond to our queries sent in June.Owners Of Crest LogisticsTill September 2009, Reliance Infra held almost 20 percent in Crest Logistics, while a web of Reliance Anil Dhirubhai Ambani group entities owned the rest, according to filings with the Ministry of Corporate affairs.Then the ownership shifted to another maze of companies. In FY17, another set of filings show, Mukesh Thakorlal Shroff and Vijaykar Shashank Shripad owned most of Crest Logistics shares—through a web of entities. And yet, neither Shroff nor Shripad hold directorship in Crest Logistics despite owning it.A further analysis of disclosures by Crest Logistics and other Reliance Group subsidiaries revealed:Crest Logistics is classified by stock exchanges as a promoter of two listed Reliance Group companies—Reliance Power Ltd. and Reliance Capital Ltd.One of the directors and the company secretary of Crest Logistics have email IDs with domain name ‘@relianceada.com’—the same as for Reliance Infrastructure. BloombergQuint has not named the people since it couldn’t independently reach out to them.Crest Logistics’ email ID ‘rinfra.mcafiling@relianceada.com’ also has Reliance Infra and Reliance ADA Group in its domain name.2G Scandal LinkThe EPC firm has changed its name at least twice in the past decade. Prior to 2015, Crest Logistics’ name was Rel Utilities and Engineers Pvt. Ltd., and before 2011 it was called Sonata Investments.Sonata’s name came up in the Central Bureau of Investigation’s case in the 2G spectrum scandal against former Telecom Minister A Raja. The CBI had alleged that funds were transferred between Reliance ADA Group and Swan Telecom Ltd. through Sonata to acquire licences.Reliance ADA Group, according to the 2G judgment, admitted to Sonata being part of the conglomerate. The company was, however, acquitted of charges.Common Offices In MumbaiTo find out more about Crest Logistics and its business, BloombergQuint visited its registered address—mentioned on the Ministry of Corporate Affairs’ website—in Santacruz East, Mumbai..A board on the ground floor pointed to a Reliance Infra office on the seventh floor. There, besides Reliance Infra, we found boards of group peers RPower Trustee Company Pvt. Ltd. and Jharkhand Integrated Power Ltd. A separate one featured Crest Logistics along with several other companies.All of them shared the office address..A security guard stationed outside the seventh-floor said the office has not been used for a long time. When asked about Crest Logistics, one of the two people inside, sporting the Reliance Group ID, directed us to the nearby Reliance Centre—the Reliance Infra headquarters.Crest Owners’ Reliance LinkShroff and Shripad, owners of Crest Logistics, also run a BSE-listed investment banking and financial advisory firm VB Desai Financial Services Ltd. Shroff is the promoter-director and Shripad the chief financial officer.BloombergQuint visited their office in Dalal Street. In the 20-odd minutes we spent there, the duo confirmed having received our emailed queries, heard all our questions but refused to answer any of them—saying they needed the board’s permission and would respond by July 16. They haven’t replied yet.A court case suggested that VB Desai’s ties with Reliance stretch as far back as 1988. According to the Supreme Court judgment in a case—N Parthasarathy Vs Controller of Capital Issues & ANR—Reliance Group companies funded VB Desai in 1989 to acquire shares of Larsen & Toubro Ltd. in a bid to get control of the construction company.What Crest DoesDocuments reviewed from the Ministry of Corporate Affairs’ website indicate that Crest Logistics had total assets of Rs 23,527.2 crore as of March 2016. This amount was largely lent to or invested in shares and debentures of unknown entities. A small portion was invested in Reliance Capital, Reliance Power, and Reliance Media Ltd..Crest Logistics received funds totaling Rs 6,295 crore from Reliance Infra through a mix of equity, preference and debt instruments that fiscal—the current status is not known. It received a major chunk of its funds through unsecured loans from unrelated parties—the names were not disclosed.Crest Logistics also earned Rs 1,591.5-crore revenue from EPC and contracting business in 2015-16, according to its filings. That contributed 55 percent of the company’s sales, and the rest came from investments.Unanswered QuestionsThus, BloombergQuint has been able to reasonably establish that the EPC company that Reliance Infra has a Rs 7,083 crore exposure to is Crest Logistics.But is Crest a related party? Our investigation raises pertinent questions about this:Why Reliance Group companies have the same registered address as Crest Logistics?Why did the director and company secretary of Crest Logistics have a common email domain name of @RelianceADA.com?If the ownership of Crest Logistics is not with the Anil Ambani group, why do Reliance Capital and Reliance Power continue to classify it as a promoter entity?Why is Reliance Infra waiting for Crest to file its annual financial report to determine whether it is a related party or not?If Crest is a related party then did Reliance Infra get requisite approvals for the transactions with it? We are still awaiting a response.

Crest Logistics: Mystery Firm That Owes Anil Ambani’s Loss-Making Reliance Infra Rs 7,000 Crore

A debtor? An investee company? Or a related party? The relationship between Reliance Infra and this mystery company.

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