Lenders to the Anil Ambani group of companies have reacted sharply to objections to their move to sell pledged shares after Reliance Communications (RCom) entered bankruptcy proceedings triggering a slide in their share value.
The companies under the Anil Dhirubhai Ambani Group (ADAG) tanked Rs 14,000 crore over the week a foreign vendor of telecom equipment went to court over a payment default.
Ambani accused the lenders including L&T Finance and Edelweiss of illegally invoking pledged shares, terming it "motivated and unwarranted", according to a media report.
The lenders rejected the allegation saying that the Reliance Group companies failed to meet contractual obligations and that frequent defaults left them with no choice, the report said.
Shares of the Anil Ambani group companies slid under selling pressure after RCom declared its decision to move the insolvency tribunal for bankruptcy protection. Since February 4, Reliance Communications plunged 54 percent, Reliance Power 59 percent, Reliance Capital 32 percent and Reliance Infra 56 percent, according to the report in the Economic Times.
In reaction to market cap erosion, L&T Finance sold 20 million shares of RCom, 7.8 million shares of Reliance Capital, 4.9 million shares of Reliance Infrastructure and 62.5 million shares of Reliance Power, on Thursday. Edelweiss also reportedly sold a substantial chunk of the pledged shares.
The Reliance Group has alleged that the sale is "illegal and excessive" and against the process and requirements of relevant documentation.
"The manner of conduct of the above open market sales, without any attempts whatsoever at orderly market disposal through a bid or structured process for shares comprising the holding of the promoter group, 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, which are applicable to all persons (including NBFCs) dealing in listed securities, whether on invocation of pledge or otherwise," a group said in a statement.
On Friday, the group's shares gained anywhere between 5 percent and 12 percent. L&T Finance and Edelweiss defended their actions saying they sold pledged shares as per the law.
"As per loan and pledge agreements, the borrower (Reliance Group) did not cure various events of defaults including providing a margin for the shortfall in the stipulated security cover," L&T Finance said. "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."
Edelweiss said that the sale was prompted by a fall in collateral value and the promoters' failure to meet contractual obligations. "On February 4, 2019, there was a sharp drop in the prices of Reliance ADAG group shares, which led to further erosion in the collateral value. 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."
