Why Reliance Power shares hit 5% lower circuit for 3rd straight session

Shares of Reliance Power, a part of the Reliance Anil Dhirubhai Ambani Group, remained under stress for the third consecutive session on Tuesday after the SEBI’s action against its promoter, Anil Ambani.  Last week, the capital market regulator barred the industrialist and 24 others from the securities market for five years for the alleged diversion of funds from Reliance Home Finance Ltd (RHFL). 

Weighed down by the development, Reliance Power shares were locked in the 5% lower circuit limit for third straight session, falling 14.2% during this period. On Tuesday, the stock slipped by 5% to ₹31.10 per share, while the market capitalisation dropped to ₹12,493 crore.

The share price of Reliance Power touched its 52-week high of ₹38.07 on August 23, 2024, rebounding from its 52-week low of ₹15.53 hit on October 26, 2023. In the last one year, the stock has risen 78%, while it gained over 26% in six months. In the calendar year 2024, the counter added 30%, while it lost nearly 1% in a month.

The SEBI in its final order dated August 22, 2024, barred Anil Ambani and 24 other entities, including former RHFL officials, from the securities market for 5 years in a fund diversion case. In its findings, SEBI found that Anil, with the help of RHFL's key managerial personnel, had allegedly "orchestrated" a "fraudulent scheme" to siphon off funds from RHFL by disguising them as loans to entities linked to him. Anil, while not directly approving the loans, influenced disbursement due to his role in the Reliance ADA Group, the order said. 

While RHFL has been suspended from the market for six months and fined ₹6 lakh, fines have been imposed on former RHFL officials such as Amit Bapna with ₹27 crore, Ravindra Sudhalkar with ₹26 crore, and Pinkesh R. Shah ₹21 crore. Anil has been imposed a penalty of ₹25 crore.

As per the SEBI report, RHFL officials, including Amit Bapna, Ravindra Sudhalkar, and Pinkesh Shah, played "critical roles" in the "improper" loan approval and management. As most borrowers failed to repay loans, RHFL defaulted on its debt obligations. This resulted in the company's resolution under the RBI framework, adding to the troubles of its public shareholders, it said.

However, Reliance Power has claimed that the SEBI action will not have any impact on the business and affairs of the company as Anil Ambani resigned from its board of directors following the regulator’s interim order on February 11, 2022, in the same proceedings.

Reliance Power, which had turned into a penny stock four years ago, has witnessed a significant recovery in its share price amid a slew of positive developments. From its all-time low of ₹1.15 on March 27, 2020, the stock has grown multi-fold in four years as the company showed some resilience to get back on track. In January this year, the company signed an agreement with DBS Bank India for settlement of the entire obligations for its borrowings. In June last year, the cash-strapped company had reportedly settled ₹925 crore debt owed by its subsidiary in Rosa, Uttar Pradesh, from the fund raised from Singapore-based Varde Partners. In September 2020, Reliance Power and its subsidiaries had inked a pact with Varde Partners to raise debt of about ₹1,000 crore by offering 15% equity stake in the company. The outstanding loan of the company as on March 31, 2022, was nearly ₹ 2,200 crore.

For the first quarter ended June 30, 2024, Reliance Power posted a consolidated loss of ₹97.85 crore, which narrowed from ₹296.31 crore in the same period last year, on the back of improved income. The total income rose to ₹2,069.18 crore from ₹1,951.23 crore in the year-ago period.

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