After Reliance Communications failed to take necessary approvals from lenders and Department of Telecommunications (DoT) to conclude its deal with Reliance Jio and opted for insolvency proceedings on February 1, 2019, lenders resorted to panic selling of shares in four Anil Ambani-led companies, including Reliance Capital, Reliance Communications, Reliance Infrastructure and Reliance Power.
As a result, the promoter's stake in Reliance Communications and Reliance Capital slipped below 50 per cent.
Last week, non-banking finance companies, especially L&T Finance and certain entities of Edelweiss Group, sold 31.81 crore pledged shares worth Rs 552.17 crore of Reliance Group, leading to a loss in investor wealth of Rs 13,000 crore.
Weighed down by invocation of pledge on Reliance Group's shares, the stake of promoters reduced by 1-4 per cent in the companies.
Reliance Capital witnessed a 4.09 per cent decline in the promoter stake after 1.03 crore shares worth Rs 126.94 crore were sold by the finance companies. This massive selling in the Reliance Capital share dragged the promoter share to below 50 per cent. The new promoter share in Reliance Capital after the share sale of last week came down to 47.90 per cent, which earlier stood at 51.99 per cent.
Reliance Communications which was once the crown jewel of Anil Ambani's business also witnessed similar changes in the promoter holdings. After filing for bankruptcy on February 1, 2019, finance companies sold 8.98 crore of RCom shares, valued at Rs 52.75 crore. This selling of pledged shares of Reliance Communications brought the promoter share in RCom to 49.71 per cent from the earlier 52.96 per cent.
In Reliance Infrastructure, the promoter holding has fallen by 2.87 per cent after finance companies sold 75 lakh pledged shares valued at 108.71 crore. The new promoter stake in Reliance Infrastructure now stands at 45.49 per cent which earlier was 48.36 per cent.
Reliance Power has seen the least decline in the promoter share. In RPOWER, the promoter stake now stands at 39.64 per cent compared to the earlier 40.53 per cent, representing a fall of 0.89 per cent.
Pledging of shares
Pledging of shares is a way by which promoters of a company raise funds from finance companies against their holding in a company.
Invocation of pledge
When the value of pledged shares falls below a certain level, it triggers 'margin call', requiring the promoters to make up for the shortfall in the value of the collateral. If promoters fail to provide additional shares to cover the fall in value of the stock, lenders/finance companies sell these shares to minimise losses.
In an earlier stock exchange filing, Reliance Group responded to the massive selling by the financial companies and said, "A few NBFCs, substantially L&T Finance and certain entities of Edelweiss Group, have invoked pledge of listed shares of Reliance Group and made open market sales of the value of approx. Rs 400 crore from 4.2.2019 to 7.2.2019. The illegal, motivated and wholly unjustified action by the above two groups has precipitated a fall of Rs 13,000 crore, an unprecedented nearly 55 per cent in market capitalisation of Reliance Group over just these four short days, causing substantial losses to 72 lakh institutional and retail shareholders, and harming the interests of all stakeholders."
In its statement on Saturday, Edelweiss Group strongly stated that the allegations levelled by Anil Ambani's Reliance Group are entirely unfounded, baseless and false.
L&T Finance also came forth with its clarification that the sale of shares of Anil Ambani's Reliance Group companies is as per contractual rights and is legal.
Meanwhile, Reliance Capital's Board of Directors decided to opt for legal measures in the matter, on grounds of protecting shareholders' interests.
"The Board of Directors recommended and approved that the company take all appropriate legal steps to protect and enhance the value of all its stakeholders, especially the over 7 lakh retail shareholders of the company," Reliance Capital said in a statement.
(Edited by Aseem Thapliyal)