Sale of pledged shares by L&T Finance, Edelweiss illegal: Reliance Group

Anil Ambani-promoted Reliance Group alleged on Friday that misconduct by certain non-banking financial companies (NBFCs), particularly L&T Finance and Edelweiss, had led to the recent slump in shares of some of its companies, and termed their action “illegal, motivated, and wholly unjustified”.

L&T Finance and Edelweiss refuted the allegations and said they had followed the due procedure.

Sources said while lenders were within their rights to sell the shares, the manner in which the share-sale was conducted was the real bone of contention. L&T Finance and Edelweiss might approach the Securities and Exchange Board of India early next week to clarify their position on the allegations, the sources said.

The share prices of Anil Ambani group firms fell sharply during the past week, after Reliance Communications said it would seek debt resolution through the National Company Law Tribunal (NCLT). The sell-off prompted L&T Finance and Edelweiss to sell pledged shares to make up for the fall in collateral value.

The Anil Ambani group issued a strongly worded statement against the NBFCs from whom it had availed loans against shares.

“A few NBFCs, substantially L&T Finance and certain entities of the Edelweiss group, have invoked pledge of listed shares of Reliance Group and made open market sales of the value of approximately Rs 400 crore,” said the statement. “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.”

L&T Finance said its sale of Reliance Group companies’ shares was in accordance with its contractual rights and, therefore, legal. The Edelweiss group also affirmed that its actions were within the legal boundaries, and dismissed the allegations levelled against it as “false”.

During the past week, Reliance Infrastructure, Reliance Communications, and Reliance Power lost more than 50 per cent of their market cap. For Reliance Capital and Reliance Naval & Engineering, the market cap erosion was more than 30 per cent.

The Anil Ambani group assured investors that Reliance Infrastructure, Reliance Capital, and Reliance Power were performing satisfactorily on all parameters, and that they won’t be adversely impacted by Reliance Communications’ plans to seek debt resolution through the NCLT.

L&T Finance sold Rs 234 crore worth of shares of Reliance Communications, Reliance Capital, Reliance Infrastructure, and Reliance Power on Thursday in bulk deals. Besides L&T Finance and Edelweiss, STCI Finance sold shares worth Rs 37 crore of Reliance Infrastructure during the week.

“L&T Finance had granted loans against pledge of shares to Reliance ADAG Group companies. According to the loan and pledge agreements, the 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,” the L&T group firm said. Edelweiss also claimed the Anil Ambani group failed to address its concerns on the shortfall in margins and the resultant fall in collateral valuation.  

“On February 4, there was a sharp drop in the prices of Reliance Group shares, which led to further erosion in the collateral value. The Edelweiss group once again 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,” Edelweiss’ statement read.  

Shares of group firms gained 3-11 per cent on Friday, following a sharp tumble. Despite the rebound, shares are down 24-58 per cent this week, with the exception of Reliance Nippon Life Asset Management, which is up 20 per cent.

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