New Delhi, Reliance Energy Limited (REL) is a 78 years old private sector power major engaged in power generation and distribution. REL is a part of and controlled by the Anil Ambani Group. Indian Insurance Companies hold 21.50% of the equity capital of Reliance Energy Limited.
REL being one of the largest private sector players in Power generation and distribution has been awarded large and mega power projects for 24200 MW, either directly to REL or to its nominees on the strength of its financial and technical strengths. REL has the capability to execute all these projects on its own and its financial position is strong enough to raise all required finances. These power projects include prestigious projects like Sasan, Dadri, Rosa etc. However, a careful study of the draft red herring prospectus (DRHP) filed by another Anil Ambani group company, Reliance Power Limited (RPL), proposing a Public Issue of 130 Crore Equity shares of Rs.2 each, (the face value of each share being 2 rupees therefore, the expected issue price per share is seen around 60 rupees)
reveals that the Power Generation Business opportunities secured in the name of REL and those secured with the strength of REL have been transferred to RPL by means of some internal MOUs & understandings. As per the said DRHP, RPL would be implementing 12 Power projects in India having a capacity of 24200 MW. Further the draft prospectus unambiguously declares that REPL will be the primary vehicle for investments in the power generation sector by the ADA Group. The implication of this is very serious for the future prospects of REL and its shareholders.
For example, at the issue price of 60 rupees, Reliance Power is worth 700 bln rupees and Anil Ambani's stake at 350 bln rupees, which has been acquired for merely 10 bln rupees! Hence, in case Reliance Power issues the shares at a price of 500 rupees per share, Anil Ambani will gain upwards of 550 bln rupees at the expense of future shareholders of Reliance Power.
As per the various announcements and indications, the said Company, RPL proposes to mop up about Rs.8000 Crores of public money through this initial public offer. As per recent news report by one of the Lead Managers, UBS, RPL has been valued at about Rs. 70000 crores.(at a minimum) RPL itself has no experience or capability of implementing these projects and thus the valuation of the Company only and purely reflects the strengths of REL for these projects. This entire valuation of 70000 crores is the value of the projects that have been stripped off from REL as a scheme for personal enrichment of Mr. Anil Ambani. If this Public Issue happens Mr. Anil Ambani will enrich himself by Rs 35000 crores, at the expense of crores of Indian public. .
The Companies Act prescribes a fiduciary duty on the Directors of a Company to ensure that the assets of the Company are used for the purposes of the Company and enhance the wealth of its shareholders. The Act restricts in several ways any transaction between a director and the Company to ensure that the director should not misuse his position for any personal gain. The Act also provides that significant assets of the Company can not be transferred without the approval of the shareholders.
However all these have been given a complete go-by in REL, depriving the shareholders of financial benefits.
It is surprising to note that LIC, one of the major shareholders with a nominee director on the Board of REL, has remained a mute spectator. Analysts suspect collusion between the promoters of the ADA group and the nominee director.
It is evident that the LIC & other Insurance companies have failed in their duty and obligation to protect the interest of the general public who have invested their hard earned savings in the Insurance Companies.
Analysts say that SEBI has a duty not to allow this public issue. SEBI is duty bound to protect the interests of investors in securities. Allowing this public issue will set a dangerous precedent. Also, according to clause 3.7.1 (i) of Sebi guidelines, a company cannot make a public issue of 2 rupees face value share at a price less than 500 rupees each.
In this context, the observations of Mr. Damodaran, Chairman SEBI, as reported in Economic Times on 15th October 2007, is very relevant.
“Institutional Investors would have to play a proactive role to ensure that promoters did not gain at the expense of minority shareholders” “When we talk about Institutional Investors with large holdings, are they assertive enough? There are companies where institutional investors together hold around 30% stake but, do they attend AGMs. Have they been heard raising issues that they are unhappy with at AGMs? Perhaps Mr. Damodaran had the proposed public issue of Reliance Power in mind when he uttered these words. Little surprise. Sh Silvius Condapan, MP Rajya Sabha and Sh Baleshwar Yadav, MP Lok Sabha have written to the Central Vigilance Commissioner, the Finance Minister and to Sh. Prem Chand Gupta, Minister for Corporate Affairs complaining against this malpractice.