Anil Ambani’s Reliance Group Blames L&T Finance, Edelweiss For Stock Rout

Anil Ambani's Reliance Group blamed L&T Finance Ltd. and Edelweiss Group for the 55 percent drop in market capitalisation of group companies in four trading days, alleging that the sale of pledged shares by the non-bank lenders was “illegal, motivated and unwarranted”.

Creditors, including L&T Finance and Edelweiss, sold 31.9 crore pledged shares of four companies—Reliance Power Ltd., Reliance Infrastructure Ltd., Reliance Communications Ltd. and Reliance Capital Ltd., according to exchange filings. That led to a 3-8 percentage-point reduction in founders' stakes in these firms. The sale followed a slide in shares of Reliance Communications as the company decided to voluntarily approach the insolvency court after failing to get the government's nod to sell spectrum and towers to Reliance Jio Infocomm Ltd. to pare debt.

The purported exercise of rights to enforce the security is “illegal and excessive”, and against the requirements of borrowings' documentation, Reliance Capital said in an exchange filing, pointing out that seller entities are regulated by the Reserve Bank of India and the market regulator and are required to act within the strict parameters of the regulatory framework.

“The manner of conduct of the open market sales without any attempt at orderly market disposal through a bid or structured process for shares comprising the holding of the promoter group, is illegal on several counts,” the filing said. It assured investors that Reliance Capital Ltd., Reliance Infrastructure Ltd., Reliance Power Ltd. and its various subsidiaries, are performing “satisfactorily on all parameters”.

Both Edelweiss Group and L&T Finance refuted the allegations.

The allegations are “entirely unfounded, baseless and false”, Edelweiss said. “Over the last several months, Edelweiss Group has reached out numerous times to Reliance ADAG Group to address concerns on shortfall in margins (via regular margin call notices) and resultant fall in collateral valuation,” it said. Not only did the group fail to address the concerns but also continued to breach contractual obligations, the statement said.

L&T Finance said that the Reliance Group “did not cure various events of defaults including providing margin for shortfall in the stipulated security cover”. “Despite various notices in the past few months, events of defaults continued. Consequently, L&T Finance enforced its rights of invocation and sold pledged shares to the extent of its outstanding dues by following the due process of contract and law.”

(Updates an earlier version with L&T Finance and Edelweiss Group statements)