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EBM News

Reliance blames ‘illegal’ actions by L&T Finance, Edelweiss for stock crash

New Delhi: The Anil Ambani-led Reliance Group on Friday accused L&T and Edelweiss entities of “illegal” and “motivated” actions in invoking the pledged shares and selling them in open market, leading to steep declines in the share value of group firms.

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

A few Non-Banking Finance Companies, “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 approximately Rs 400 crore from February 4 to 7,’ the group said in a statement.
It was not clear who had pledged the shares.

‘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,’ it noted.

In that period, shares of Reliance Power plunged 62.1 per cent, while those of Reliance Infrastructure dropped 58.6 per cent, and Reliance Capital fell 38.6 per cent.

The Reliance Group said the actions have caused substantial losses to 72 lakh institutional and retail shareholders, and harming the interests of all stakeholders.

Citing legal advice, the group also said the purported exercise of rights to enforce the security is illegal and excessive, and against the process and requirements of the respective borrowings’ documentation.

“The manner of conduct of the above open market sales… is also illegal on several counts, including amongst others, price manipulation, insider trading, front running and market abuse, and is in violation of various regulatory provisions…,” said the statement issued during market hours.

Further, the group said that Reliance Capital, Reliance Infrastructure and Reliance Power as well as their various subsidiaries are performing satisfactorily on all operating parameters, and there is no change whatsoever on any aspect as compared to the position prevailing prior to these sales.

Refuting the allegations, L&T Finance said it had granted loans against pledge of shares to Reliance ADAG Group companies.

“As per loan and pledge agreements, borrower 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,” it said in a statement.

While noting that the allegations as “unfounded, baseless and false”, Edelweiss Group said it had granted credit facilities against pledge of shares to Reliance ADAG Group.

Edelweiss Group said it has reached out numerous times to Reliance ADAG Group to address concerns on shortfall in margins and resultant fall in collateral valuation.

“Despite our best efforts, not only did Reliance ADAG Group fail to address any of the concerns raised by Edelweiss Group, but also continued to breach contractual obligations,” it said in a separate statement.

On February 4, there was a sharp drop in the prices of Reliance ADAG group shares, which led to further erosion in the collateral value, Edelweiss said, adding that it also gave due opportunity for remediation. ‘Since there was no response from Reliance ADAG Group, it necessitated liquidation of the collateral as per the agreed contractual terms. Throughout this process, Edelweiss has acted in a lawful and responsible manner,’ it added.

The group also said that plans by RCom to resolve its debt through the National Company Law Tribunal had no adverse impact on the three companies in question.

RCom’s stock has dropped 55.2 per cent since it announced its plan.