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CG rating of reliance industries


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CG rating of reliance industries

  1. 1.  Reliance Industries Limited (RIL) (BSE: 500325, NSE: RELIANCE, LSE: RIGD) is an Indian conglomerate company headquartered in Mumbai, Maharashtra, India RIL is one of the largest publicly traded companies in India by market capitalisation and is the second largest company in India by revenue after Indian Oil Corporation. It is also Indias largest private sector company by revenue and profit. The company is ranked 99th on Fortune Global 500 list of the worlds biggest corporations for the year 2012 We followed both ICRA and GMI  Board accountability  Financial disclosure and internal controls  Share holders rights  Executive compensation  Market control  Corporate behaviour and CSR issues
  2. 2. BOARD ACCOUNTABILITY RATING : 8.1 Composition and broadcasting of the board andprocessesComposition of various committees in company1. Audit Committee2.Corporate Governance and Stakeholders’ InterfaceCommittee3..Employees Stock Compensation Committee4.Finance Committee5. Health, Safety & Environment Committee6. Remuneration Committee7. Shareholders’/Investors’ Grievance Committee
  3. 3. BOARD ACCOUNTABILITY RATING : 8.1Governance Structure and management Processes
  4. 4. FINANCIAL PERFORMANCE , DISCLOSURE AND INTERNAL CONTROLS RATING: 8.5Financial Performance Disclosure NormsInternal Controls
  5. 5. FINANCIAL PERFORMANCE , DISCLOSURE AND INTERNAL CONTROLS RATING: 8.5Financial Performance for equity holders since its inception Earning Per Share( in Rs.) 120 105.3 100 80 60 62 40 Earning Per Share( in Rs.) 20 0
  6. 6. FINANCIAL PERFORMANCE , DISCLOSURE AND INTERNAL CONTROLS RATING: 8.5Financial Performance for equity holders: DividendDeclared Year Dividend Per Share(Rs.) 2001-02 4.75 2002-03 5.00 2003-04 5.25 2004-05 7.50 2005-06 10.00 2006-07 11.00 2007-08 13.00 2008-09 13.00 2009-10 7.00 2010-11 8.00
  7. 7. FINANCIAL PERFORMANCE , DISCLOSURE AND INTERNAL CONTROLS RATING: 8.5Financial Performance for Debt Holders:Year 2004 2005 2006 2007 2008 2009 2010 2011Interest 5.2 7.06 12.97 13.15 16.83 11.13 10.28 10.78Coverage(Rs. InCrores)
  8. 8. FINANCIAL PERFORMANCE , DISCLOSURE AND INTERNAL CONTROLS RATING: 8.5Financial Performance for Debt Holders: Rating Agency Instrument Rating CRISIL Long Term Debt AAA Fitch Long Term Debt Ind AAA CRISIL Short Term Debt P1+ CRISIL Working Capital AAA Debt Moodys International Debt Baa2 S&P International Debt BBB Fitch International Debt BBB -
  9. 9. FINANCIAL PERFORMANCE , DISCLOSURE AND INTERNAL CONTROLS RATING: 8.5Disclosure Norms1. Accounting quality, including compliance with accepted accounting standards2. Changes in accounting policies3. Notes to accounts of a materially significant nature4. Loans and Advances, Inter-Corporate Advances, and Contingent Liabilities5. Disclosures on transactions with subsidiaries and associates6. Additional information to shareholders7. Quality of disclosures in Management Discussion and Analysis (MDA)
  10. 10. FINANCIAL PERFORMANCE , DISCLOSURE AND INTERNAL CONTROLS RATING: 8.5Internal Controls1. RIL conducts regular internal audits to test compliance with the statutory requirements. Audits are led by professional audit managers and supported by experienced personnel drawn from across the organization. All the 3 members of Audit Committee are Independent Directors.2. Risk Assessment and Management: RIL uses various derivative instruments tomanage the risks arising from fluctuations in exchange rates and interest rates.
  11. 11. SHAREHOLDERS’ RIGHTS RATING: 5.71 Election of auditors and fixing their remuneration • Remuneration committee which recommends and reviews the remuneration of the auditors on their performance, diligence and defined assessment criteria.. Director’s report and accounts circulated to all share holders. • Half yearly financial reports are sent to all the member to their address registered with the company. • Printed copy of chairman’s speech is distributed to all share holders during the AGM.
  12. 12.  Shareholders grievance committee To demand poll on any resolution at a general meeting in accordance with the provisions of the Companies Act, 1956. As one of the duty and responsibility of the shareholder, neither to indulge in fraudulent and unfair trading in securities nor to act upon any unpublished price sensitive information. To inspect statutory registers and documents as permitted under law. System to prevent insider trading: RIL, which allegedly indulged in insider trading activity in 2007. While the case is yet to be settled, it was believed this would be done through consent with a monetary penalty in the range of R500 crore to R2,000 crore Receive dividends , and other corporate benefits like bonus, rights e.t.c
  13. 13. EXECUTIVE COMPENSATION RATING: 7.5 Remuneration and Compensation CommitteeThe Remuneration Committee has been constituted to recommend/review remunerationof the Managing Director and Whole- time Directors, based on their performance anddefined assessment criteria.Whether all members are independent or promoter groups are there1. A majority of the Board, 7 out of 13, are independent directors.2. The Audit Committee, Remuneration Committee and Corporate Governance and Stakeholders’ Interface Committee comprise only independent directors.
  14. 14. EXECUTIVE COMPENSATION RATING: 7.5Remuneration policy and disclosure of remuneration of CEO’sThe remuneration policy of the Company is directed towards rewardingperformance, based on review of achievements on a periodic basis.The remuneration policy is in consonance with the existing industry practice.
  15. 15. EXECUTIVE COMPENSATION RATING: 7.5 Remuneration paid to the Chairman and Managing Director and the Whole-time Directors
  16. 16. EXECUTIVE COMPENSATION RATING: 7.5Sitting fee and commission to the Non-Executive Directors
  17. 17. EXECUTIVE COMPENSATION RATING: 7.5Their main objective under this attribute is levels of remuneration should besufficient to attract, retain and motivate Directors of the quality required to run theCompany successfully, but should avoid paying more than is necessary for thispurpose.A significant proportion of the Executive Directors’ remuneration is performancerelated through the annual bonus and long-term incentive schemes. Executives cannot fix their own remuneration.There should be a formal and transparent procedure for developing policy onexecutive remuneration and for fixing remuneration packages of individual Directors.
  18. 18. MARKET CONTROL RATING: 7.5 Ownership of the shareholders pattern/shareholding structure transparent ownershipstructure No. Particular No. of % of Total Shares shares A. Promoters holding 1463923383 45.15% B. Public Holding 1. Institutions (Mutual Funds / UTI, Financial 914377747 28.20% Institutions / Banks, Central Government / State Government(s), Insurance Companies, Foreign Institutional Investors) 2.Non-Institutions 756110124 23.32% Total Public Holding 1670361884 51.52% C. Shares held by Custodians and against which 108189012 3.34% Depository Receipts have been issued. TOTAL(A+B+C) 3242474279 100.00%
  19. 19. MARKET CONTROL RATING: 7.5Takeover Defence Strategy, Poison Pill’There is no threat of takeover from existing individual stock holder. According toSEBI’s takeover code, 2011, the minimum trigger point for making the public offer is25%. So, at this moment there is no threat of Takeover by any stockholder because thehighest stake by any individual stock holder in the company is 7.77% of total shares.This stake is held by Life Insurance Corporation of India. Hence, there is no need to useTakeover Defence Strategy, ‘Poison Pill’.
  20. 20. MARKET CONTROL RATING: 7.5Buy -back shares ProgrammeCompany has introduced a plan to buy back shares Programme worth of Rs.10, 000crore by 2012-13. Stock buybacks may be a reasonable use of free cash, particularlyin circumstances where dividends would be appropriate but the repurchase plan ismore tax-efficient for shareholders. However, they are sometimes used bystruggling management teams to inflate a company’s earnings per share.Hence, Neutral Rating of ‘0’ is given.
  21. 21. MARKET CONTROL RATING: 7.5 Expenditure on Buyback of sharesTotal assets of Reliance in 2011-12 are Rs. 327191 Crores and 2% of total assets wouldbe Rs.6543.82 crore. (RIL), the second most valued among listed companies, has boughtback shares worth 539 crore since the launch of its buyback offer in February.Company has spent so far Rs.500 crore which is less than 2% of total assets, whichis good for share holders.
  22. 22. CORPORATE BEHAVIOUR AND CSR RATING: 5.93 EnvironmentalSocialCSR Steps taken up by company Compliance with CSR Guidelines in Companies Bill,2011 by RIL
  23. 23. CORPORATE BEHAVIOUR AND CSR RATING: 5.93CSR Steps taken up by company Sr.No. Particulars Beneficiaries Education 1. 11 schools 15000 students till FY11- 12 2. Free education 90 schools 3. Street plays to promote education 4. Reliance Dhirubhi Ambani Protsahan helped 900 higher Scheme - help meritorious students. education scholarship in FY11-12
  24. 24. CORPORATE BEHAVIOUR AND CSR RATING: 5.93 CSR Steps taken up by company Health care Beneficiaries1. Public Health Communities Capacity of 1000 patients2. Campaign on HIV-AIDS3. Anti-Retroviral Treatment(ART) 2500 assistance to patients - 2011-12 65,000 patients in Hazira, Surat so far under ART4. Project ‘Hope’ and Project ‘Balkalyan’ for Children with AIDs5. Reliance ‘Drishti’- in association with (NAB) completed over 10,000 cornea grafting in 2011-12
  25. 25. CORPORATE BEHAVIOUR AND CSR RATING: 5.93 CSR Steps taken up by company : Other areas..1 Heritage Conservation construction of Dwarka Parisar2 Disaster Relief FY 11-12, provided tarpaulins for cyclone affected people in Puduchery. Clothes, food materials and A/C sheets were provided to the fire affected villagers in Allahabad.3 Promoting sports Promoting sports in India, RIL has instituted the IMG Reliance Scholarship.4 Safety initiative for community RIL established a Truckers’ Safety Training Centre at Hazira. More than 100,000 drivers have been trained through this initiative since its inception in 2005.5 Reliance rural development trust and foundations
  26. 26. CORPORATE BEHAVIOUR AND CSR RATING: 5.93Compliance with CSR Guidelines in CompaniesBill,2011 by RIL1. No clarity on how much Reliance spends on CSR against required CSR norms: Company are required to spend 2% of average of last 3 years profit as per the CSR guidelines of Companies Bill,2011(Similarly, corporate leader Reliance Industries which posted Rs 20,211 crore PAT may have to spend Rs 404 crore towards CSR)2. No separate Social Audit Report3. No active Engagement with NGOs.
  27. 27. OVERALL CG RATING : 8.65 A. GMI scores companies on the following scale: Ratings from 7.5 to 8.5: Above average B. SVG2 implies that in ICRA’s current opinion, the rated company belongs to the High Category on the composite parameters of stakeholder value creation and management, as also corporate governance practices.