Reliance Communications

1 Previous Period
 
 The previous period ended 31st March, 2007 was for fifteen months from
 1st January, 2006 to 31st March, 2007 which included twelve months’
 operating results of erstwhile Reliance Infocomm Limited for the period
 from 1st April, 2006 to 31st March, 2007, which was merged into the
 Company with effect from 31st March, 2006. Hence, the figures of
 current year are not comparable with the previous period.
 
 2 Foreign Currency Convertible Bonds (FCCBs)
 
 (i) Pursuant to the exercise of option by holders of FCCBs issued on
 9th May, 2006, the Company has, in accordance with the terms and
 conditions thereof, allotted 1,87,44,801 fully paid Equity Shares of
 Rs. 5 each at a pre determined premium of Rs.  475.68 per Share against
 2,03,051 FCCBs. Out of total 500,000 FCCBs issued, 296,949 FCCBs were
 outstanding as on 31st March, 2008.
 
 (ii) Pursuant to the exercise of option by holders of FCCBs issued on
 28th February, 2007, the Company has, in accordance with the terms and
 conditions thereof, allotted 6,67,090 fully paid Equity Shares of Rs. 5
 each at a pre determined premium of Rs.  656.23 per Share against 100
 FCCBs.Out of total 10,000 FCCBs issued, 9,900 FCCBs were outstanding as
 on 31st March, 2008.
 
 (iii) In the event, these outstanding FCCBs are fully converted into
 Equity Share, the Equity Share Capital of the Company would increase by
 approximately 9.35 crore Equity Shares of Rs. 5 each.
 
 (iv) In case of the above mentioned FCCBs, on and at anytime after 9th
 May, 2009 and 28th February, 2010 respectively, on and prior to the
 maturity date, the Company may, subject to certain terms and conditions
 as per the offering memorandum, redeem the FCCBs in whole and not in
 part at their Early Redemption amount, provided that no such redemption
 may be made unless the aggregate value (as defined in the terms and
 conditions) on each trading day during the period of not less than 30
 consecutive trading days, ending not earlier than 14 days prior to the
 date upon which notice of such redemption is given, was at least 130
 percent of the Early Redemption amount.
 
 (v) Exchange gain of Rs. 103.04 crore (Previous period Rs. Nil), on
 conversion of FCCBs during the year, relating to premium has been
 debited to the Securities Premium Account.
 
 (vi) The balance amount of Rs. 5,142.00 crore (Previous period Rs.
 1,343.00 crore), pending utilisation as at the end of the previous
 period, out of the total proceeds of the aforesaid FCCBs, have been
 used towards capital expenditure.
 
 (vii) FCCB amount includes Rs. 330.00 crore (Previous period Rs. 109.90
 crore), being the premium on redemption of FCCBs computed on pro rata
 basis for the period up to 31st March, 2008.
 
 3 Foreign Exchange
 
 Consequent upon Accounting Standard (“AS”) of 11 “The Effect of Changes
 in Foreign Exchange Rates” as notified by the Companies (Accounting
 Standards) Rules, 2006 becoming applicable to the current accounting
 year commencing on 1st April, 2007, net gain arising on account of
 foreign exchange difference amounting to Rs. 946.80 crore relating to
 the liabilities for acquisition of fixed assets has been recognized in
 the Profit and Loss Account. During the year and in compliance with the
 announcement dated 29th March, 2008 by the Institute of Chartered
 Accountants of India (the ICAI) regarding Accounting for Derivatives
 loss of Rs. 468.73 crore arising out of marking related Derivative
 Contracts to market has also been recognized in the Profit and Loss
 Account. The net gain of Rs. 400.37 crore after adjusting loss on
 account of conversion of overseas bank balances amounting to Rs. 77.70
 crore is reflected in “Financial Charges (net)” as the effects of
 Foreign Currency Exchange Fluctuation.
 
 4 Scheme of Amalgamation
 
 (a) The Company, during the previous period, undertook restructuring of
 ownership structure of telecom business so as to align the interest of
 the promoters and public shareholders. Accordingly, pursuant to the
 Schemes of Amalgamation and Arrangement (“the Schemes”) under Sections
 391 to 394 approved by Hon’ble High Court of respective judicature,
 group structure involving the group companies and subsidiary companies
 was reorganized. The Company, during the previous period, recorded all
 necessary accounting effects, along with requisite disclosure in the
 notes to the accounts, in accordance with the provisions of the
 Schemes. The cumulative effects of the Schemes in case of Equity Share
 Capital of the Company has been disclosed below the respective Schedule
 to the Accounts. In relation to Reserves, the effects incorporated in
 the amounts of the previous period, included, the following.
 
 Out of the excess of assets over liabilities of the transferor
 companies;
 
 - Credit of Rs. 9,030.63 crore to the Securities Premium Account being
 part of the Securities Premium of erstwhile Reliance Infocomm Limited
 (RIC), the transferor company, attributable to shares of RIC other than
 those being cancelled under the Schemes.
 
 - Withdrawal from General Reserves and transfer to the Profit and Loss
 Account of Rs. 9,239.77 crore being an amount equal to the write off
 consequent to the amalgamation of RIC into the Company of investments
 held by the Company in Equity Shares of RIC.
 
 - Credit to General Reserves of Rs. 2,812.62 crore being the unadjusted
 balance of the excess of assets over liabilities received by the
 Company pursuant to the Schemes.
 
 - Pursuant to the Schemes, additional depreciation arising on fair
 value of the assets have been adjusted against the balance of Provision
 for Business Restructuring.
 
 (b) Pursuant to the Scheme of Amalgamation (‘’the Scheme”) under
 Section 391 to 394 of the Companies Act, 1956, sanctioned by the
 Honourable High Court of Bombay vide Order dated 21st April, 2007,
 Reliance Infoinvestments Limited (“RIIL” or “the Transferor Company”),
 a wholly owned subsidiary of the Company, whose core activity was
 investment and fund management, was amalgamated, with effect from the
 Appointed Date as at 1st April, 2006, with Reliance Communications
 Infrastructure Limited (“RCIL”, or “the Transferee Company”), also a
 wholly owned subsidiary of the Company.
 
 (i) Upon the Scheme becoming effective,
 
 - RCIL has issued 20,000, 8% Cumulative, Redeemable Preference Shares
 to the Equity Shareholders of RIIL, whose names appear on the Register
 of Members on the Effective Date, in the Share Exchange Ratio of 1
 (One) Preference Share of the face value of Rs. 10 each in RCIL for
 every 105 (One hundred five) Equity Shares of the face value of Rs. 10
 each held in RIIL.
 
 - Investments of Rs. 2.08 crore in the Equity Shares of RIIL has, as a
 consequence, been written off to the Profit and Loss Account of the
 Company.
 
 (c) Pursuant to the Scheme of Amalgamation (“the Scheme”) under Section
 391 to 394 of the Act, sanctioned by the Honourable High Court of
 Bombay vide Order dated 12th June, 2007, Reliable Internet Services
 Limited (“RISL” or “the Transferor Company”), a subsidiary of the
 Company, whose core activities were providing telecom services, was
 amalgamated with effect from the Appointed Date as 1st April, 2006 with
 Reliance Telecom Limited (“RTL” or “the Transferee Company”), another
 subsidiary of the Company.
 
 The Transferee Company was not required to issue any shares and/ or pay
 any consideration to any of the Shareholders of the Transferor Company.
 
 (i) Upon the Scheme becoming effective,
 
 - Investments of Rs. 6.00 crore in the Equity Shares of RISL has, as a
 consequence, been written off to the Profit and Loss Account of the
 Company.
 
 5 Scheme of Arrangement for transfer of Passive Infrastructure
 
 The Scheme of Arrangement (“the Scheme”) under Section 391 to 394 of
 the Act between the Company (“RCOM” or “the First Demerged Company” or
 “the Company”), Reliance Telecom Limited (“RTL” or “the Second Demerged
 Company”) and Reliance Infratel Limited (formerly known as Reliance
 Telecom Infrastructure Limited) (“RITL” or “the Resulting Company”), a
 subsidiary of the Company through Reliance Communications
 Infrastructure Limited (RCIL) for transfer of Passive Infrastructure
 from RCOM and RTL to RITL was approved by the Honourable High Court of
 Bombay vide order dated 16th March, 2007, with the effective date as
 10th April, 2007. Upon the Scheme becoming effective and in accordance
 with direction of the Honourable High Court, the Company has;
 
 (i) Written off Passive Infrastructure assets, transferred to RITL
 having book value of Rs. 3,200.74 crore to the Profit and Loss Account.
 
 (ii) Revalued investment in RCIL, the holding company of RITL by Rs.
 4,487.84 crore. The said amount of Rs. 4,487.84 crore has been
 recognised as Reserve for Business Restructuring.
 
 (iii) Withdrawn from Reserve for Business Restructuring, an equivalent
 amount as the amount of write off i.e. Rs. 3,200.74 crore.  Balance Rs.
 1,287.10 crore in Reserve for Business Restructuring shall be available
 to meet the increased depreciation, costs, expenses, and losses
 including on account of impairment of or write down of assets etc.
 pursuant to the Scheme.
 
 6 Provisions
 
 (i) Provisions include, provision for disputed claims and others of Rs.
 1,905.20 crore (Previous period Rs. 1,837.43 crore) and provision for
 commission to Non Executive Directors of Rs. 35.00 crore (Previous
 period Rs. 44.00 crore).
 
 Provision for disputed claims and others consists of provision for
 disputed claims of Rs. 1,896.16 crore (Previous period Rs.  1,813.53
 crore) and for verification of customers Rs. 9.04 crore (Previous
 period Rs. 23.90 crore).
 
 (ii) During the year, an amount of Rs. 49.52 crore (Previous period Rs.
 Nil) relating to Access Deficit Charge (ADC), Rs. Nil (Previous period
 Rs. 19.78 crore) relating to sales tax liability and Rs. 15.01 crore
 relating to commission to Non Executive Directors (Previous period Rs.
 Nil ) has been reversed. An amount of Rs. 106.39 crore (Previous period
 Rs. 17.32 crore) has been provided towards disputed interconnect usage
 charges and Rs. 25.77 crore (Previous period Rs. Nil) has been provided
 towards disputed Spectrum Charges. An amount of Rs. 14.87 crore
 (Previous period Rs. Nil) has been utilised towards address
 verification of prepaid subscribers.
 
 (iii) On determination by the Board of Directors, the liability against
 provision for Commission to Non Executive Directors will be paid during
 the year 2008 - 09.
 
 (iv) Also refer Note 2 (vii) above.
 
 The aforesaid provisions shall be utilised on settlement of the claims,
 if any, there against.
 
                                                       (Rs. in crore)
 7 Contingent Liabilities                  As at             As at
                                      31st March, 2008  31st March, 2007
 
 (i) Estimated amount of contracts 
     remaining to be executed
     on capital accounts (net of 
     advances) and not provided for        4,365.87          875.93
 
 (ii)Disputed Liabilities in Appeal
 
 -      Sales Tax and VAT                     18.42           33.68
 
 -      Excise and Service Tax                 2.08            5.40
 
 -      Entry Tax and Octroi                   5.93            5.38
 
 -      Other Litigations                      0.43             -
 
 8 Operating Lease
 
 The Company’s significant leasing arrangements are in respect of
 operating leases for premises and network sites. These lease agreements
 provide for cancellation by either parties thereto as per the terms and
 conditions of the agreements.
 
 9 Export Commitments
 
 The Company has obtained licenses / authorisations under the Export
 Promotion Capital Goods (EPCG) Scheme for importing capital goods at a
 concessional rate of customs duty against submission of bonds.
 
 Under the terms of the respective licenses / authorisations, the
 Company is required to export goods of FOB value equivalent to or more
 than, eight times the amount of duty saved in respect of such licenses
 / authorisations, where export obligation has been refixed by the order
 of Director General Foreign Trade, Ministry of Commerce and Industry,
 Government of India, as applicable.
 
 Balance export obligations outstanding as on 31st March, 2008 under the
 aforesaid licenses / authorisations is Rs. 678.54 crore (Previous
 period Rs. 33.00 crore).
 
 10 Segment Performance
 
 Disclosure as per Accounting Standard (“AS”) 17 of “Segment Reporting”
 is reported in Consolidated Accounts of the Company.  Therefore, the
 same has not been separately disclosed in line with the provision of
 AS.
 
 11 Employee Stock Option Scheme
 
 In respect of options granted on 9th March, 2008 under the Employee
 Stock Option Scheme (ESOS) of the Company, the accounting value of
 options (based on market price of the share on the date of the grant of
 the option) is accounted as deferred employee compensation, which is
 amortised on a straight line basis over the vesting period. During the
 year, payment to and provisions for employees include charge of
 Rs.16.17 crore (Previous period Rs. Nil), on this account determined on
 time proportionate basis.
 
 The ESOS has granted total 1,49,91,185 options to the employees at an
 exercise price based on the performance conditions as set out in ESOS.
 The vesting of the options is in a graded manner over a specified
 period of time. Each option entitles the holder thereof to apply for
 and be allotted one Equity Share of the Company of Rs. 5 each upon
 payment of the exercise price during the exercise period. The maximum
 exercise period is 10 years from the date of grant of options.
 
 12 Financial Statements of Subsidiary Companies
 
 The Ministry of Corporate Affairs, Government of India vide its Orders
 No.47/3/200/-CL-III dated 28th February, 25th April and 30th April,
 2008 respectively issued under Section 212 (8) of the Companies Act,
 1956 has exempted the Company from attaching the Balance Sheets and
 Profit and Loss Accounts of its subsidiaries under Section 212(1) of
 the Companies Act, 1956.  As per the orders, key details of each
 subsidiary is attached along with the Statement under Section 212 of
 the Companies Act, 1956.
 
 (i) Disclosure in respect of transactions which are more than 10% of
 the total transactions of the same type with a related party during the
 year.
 
 1 Fixed assets acquired during the year includes Rs. 34.00 crore from
 FLAG Atlantic France SAS, Rs. 83.20 crore* from Reliance Communications
 Infrastructure Limited and Rs. 164.99 crore from Reliance Infratel
 Limited (Previous period - Fixed assets acquired includes Rs.44.01
 crore from FLAG Atlantic France SAS).
 
 * During the year, the Company has acquired the Network Fibre
 Undertaking of Reliance Communications Infrastructure Limited (RCIL), a
 wholly owned subsidiary of the Company, comprising as on 31st December,
 2007 of ducts, dark optical fibre cables including all other assets
 comprising inter alia of construction machinery, rights, powers,
 authorities, interests and privileges in all property, moveable and
 immoveable and all other future rights and interest, arising out of
 such property, forming part of the network laid by RCIL on pan India
 routes, on a going concern basis, for a token consideration of Rs.80.00
 crore.
 
 2 Loans and Advances include loan granted during year of Rs. 1,434.63
 crore to Reliance Communications Infrastructure Limited, Rs.  102.00
 crore to Reliance Telecom Limited, Rs. 300.30 crore to Reliance
 Webstore Limited, Rs. 22.59 crore to Campion Properties Limited, Rs.
 545.64 crore to Reliance Infocomm Infrastructure Private Limited, Rs.
 1,210.00 crore to Reliance Infratel Limited, Rs.  81.11 crore to
 Reliance Big TV Limited. and repaid during period of Rs. 871.65 crore
 by Reliance Communications Infrastructure Limited, Rs. 981.18 crore by
 Reliance Telecom Limited, Rs. 531.03 crore by Reliance Webstore
 Limited, Rs.1,210.00 crore by Reliance Infratel Limited, Rs. 3.00 crore
 by Reliance Big TV Limited.
 
 (Previous period - Loans and Advances include loan granted during the
 period of Rs. 175.30 crore to Reliable Internet Services Limited, Rs.
 1,283.49 crore to Reliance Telecom Limited, Rs. 933.99 crore to
 Reliance Webstore Limited, Rs.36.78 crore to Campion Proper ties
 Limited, Rs. 630.00 crore to Reliance Infocomm Infrastructure Private
 Limited, Rs. 6,342.95 crore to Reliance Communications Infrastructure
 Limited and loans repaid during the period of Rs. 5,834.37 crore by
 Reliance Communications Infrastructure Limited, Rs.190.70 crore by
 Reliance Telecom Limited, Rs. 0.06 crore by Reliance Infocomm Solutions
 Limited).
 
 3 Deposit includes deposit granted during the year of Rs. 14,659.45
 crore to Reliance Communications Infrastructure Limited and repaid
 during the year of Rs. 16,831.39 crore by Reliance Communications
 Infrastructure Limited (Previous period - Deposit granted during the
 period includes Rs. 13,517.14 crore to Reliance Infoinvestments
 Limited. Deposit repaid during the period includes Rs. 7,802.79 crore
 by Reliance Infoinvestments Limited).
 
 4 Sundry Debtors include Rs. 103.29 crore from Reliance Communications
 Inc., Rs. 60.99 crore from FLAG Telecom Ireland Limited and Rs. 6.11
 crore from Reliance Telecom Limited (Previous period - Sundry Debtors
 include Rs. 128.37 crore from Reliance Communications Inc., Rs. 32.20
 crore from Reliance Communications Infrastructure Limited, Rs. 48.61
 crore from FLAG Telecom Ireland Limited).
 
 5 Advances include Rs. 90.92 crore to Reliance Webstore Limited, Rs.
 15.52 crore to Reliance Big Tv Limited, Rs. 16.27 crore to Reliance
 General Insurance Company Limited, (Previous period - Advances include
 Rs. 732.45 crore to Reliance Communications Infrastructure Limited,
 Rs.194.81 crore to Reliance Infoinvestments Limited and Rs. 9.46 crore
 to Reliance General Insurance Company Limited).
 
 6 Sundry Creditors include Rs. 643.89 crore to Reliance Communications
 Infrastructure Limited, Rs. 64.13 crore to FLAG Atlantic France SAS,
 Rs. 17.06 crore to FLAG Telecom Ireland Limited, Rs. 463.06 crore to
 Reliance Infratel Limited, Rs. 35.07 crore to Reliance Communications
 International Inc.(Previous period - Sundry Creditors include Rs.
 994.92 crore to Reliance Communications Infrastructure Limited, Rs.
 20.44 crore to FL AG Telecom Ireland Limited, Rs. 22.39 crore to
 Reliance Globalcom Limited, Bermuda, Rs. 79.27 crore to FLAG Atlantic
 France SAS and Rs. 187.35 crore to Reliance Webstore Limited).
 
 7 Turnover includes Rs. 379.23 crore from Reliance Communications
 Infrastructure Limited, Rs. 789.95 crore from Reliance Communications
 Inc., Rs. 102.83 crore from Reliance Communications Int. Inc., Rs.
 13.90 crore from FLAG Telecom Ireland Limited, Rs. 165.30 crore from
 Reliance Telecom Limited and Rs. 64.75 crore from Reliance Webstore
 Limited (Previous period - Turnover includes Rs. 185.11 crore from
 Reliance Communications Infrastructure Limited, Rs. 1,041.90 crore from
 Reliance Communications Inc., Rs. 208.52 crore from Reliance
 Communications Int. Inc., Rs. 6.38 crore from Reliable Internet
 Services Limited, Rs.78.29 crore from Reliance Telecom Limited, Rs.
 13.05 crore from FLAG Telecom Ireland Limited, Rs. 7.42 crore from
 Reliance Communication Canada Inc., Rs. 0.83 crore from Gateway Systems
 (India) Limited and Rs. 45.35 crore from Reliance Webstore Limited).
 
 8 Other Income Rs. Nil (Previous period - Other Income includes Rs.
 53.38 crore from Reliance Infoinvestments Limited, Rs. 40.11 crore
 towards interest, Rs.2.36 crore towards lease rentals and Rs. 2.47
 crore towards facility usage charges from Reliance Communications
 Infrastructure Limited).
 
 9 Expenditure includes Access Charges Rs. 44.59 crore to Reliance
 Communications Inc., Rs. 47.67 crore to Reliance Telecom Limited,
 Network Operation Expenses Rs. 936.19 crore to Reliance Infratel
 Limited, Rs. 61.97 crore to Reliance Communications Infrastructure
 Limited, Rs. 37.13 crore to FLAG Atlantic France SAS, Rs. 8.91 crore to
 Reliance Globalcom Limited, Bermuda, Selling and Marketing expenses Rs.
 91.63 crore to Reliance Communications Infrastructure Limited and Rs.
 96.43 crore to Reliance Webstore Limited, Professional Fees Rs. 1.71
 crore to Reliance Infocom Inc., General and Administrative Expense Rs.
 146.31 crore to Reliance Communications Infrastructure Limited, Rs.
 61.17 crore to Reliance Infocomm Infrastructure Private Limited, Rs.
 17.23 crore to Reliance General Insurance Company Limited, Rent, Rates
 and Taxes Rs. 4.41 crore to Reliance Capital Limited.
 
 (Previous period - Expenditure includes Access Charges Rs. 89.81 crore
 to Reliance Communications Inc., Rs. 2.46 crore to Reliable Internet
 Services Limited, Rs. 37.50 crore to Reliance Telecom Limited, Network
 Operation Expenses Rs. 83.61 crore to Reliance Communications
 Infrastructure Limited, Rs. 20.93 crore to Flag Atlantic France SAS,
 Rs. 7.36 crore to Reliance Communications Int. Inc., Rs. 6.01 crore to
 Reliance Communications UK., Selling and Marketing expenses Rs. 96.68
 crore to Reliance Communications Infrastructure Limited and Rs. 161.45
 crore to Reliance Webstore Limited, Professional Fees Rs. 3.74 crore to
 Reliance Infocom Inc., Rent, Rates and Taxes Rs. 4.41 crore to Reliance
 Capital Limited, General and Administrative Expense Rs. 111.82 crore
 from Reliance Communications Infrastructure Limited, Rs. 95.83 crore to
 Reliance Infocomm Infrastructure Private Limited and Rs. 2.83 crore to
 Reliance General Insurance Company Limited, Financial Charges include
 Rs. 24.69 crore to Reliance Communications Infrastructure Limited).
 
 10 Financial Guarantees issued include Rs. 69.80 crore to Reliance
 Infocom BV. (Pervious period - Financial Guarantees issued include Rs.
 65.21 crore to Reliance Infocom BV).