Shares of Reliance Power (NS:RPOL) have been volatile after the Indian electric company secured a long-term debt agreement for up to 12 billion rupees ($150.4 million) from private equity firm Varde Partners, a US-based investment firm focused on distressed assets in India.
RPOWER announced the deal on Sept. 5, sending its shares surging, and at the close of trading, the company stock price had risen 9.9% to 23.30 rupees. On Sept. 6, the company’s stocks dropped 6.0% at the close of trading to 21.95 rupees.
The abrupt increase in Reliance Power's stocks, albeit short-lived, elicited a warrant for an explanation from the National Stock Exchange of India Ltd. and BSE Ltd. In its response, the company said it couldn't comment on the price movement and assured it would make an announcement when necessary.
Perhaps more alarming is the climb in RPOWER’s share price before the announcement. Two days before the announcement was confirmed, RPOWER’s shares climbed 37%.
Reliance Power In India
Reliance Power is an electric power generation, transmission, and distribution company based in Mumbai, India. It is the country's leading private sector power generation and coal resources company with one of the largest portfolios of power projects in the private sector, based on coal, gas, hydro, and renewable energy. It has an operating portfolio of 5,945 megawatts.
A member of the Reliance Group conglomerate, the power company, has a market capitalization of $992.8 million. In the quarter that ended Jun. 30, the company recorded a loss attributable to the owners of its parent at 708.4 million rupees against a profit of 122.8 million rupees in the prior-year period.
The company is considering raising fresh capital from domestic and international investors to support its future plans. Apart from the recent agreement with Varde Partners, Reliance Power is considering issuing equity shares, equity-linked securities, or convertible warrants to amass funds it can utilize in the long run. The company's board will meet on Sept. 8 to consider future fundraising plans.
Operating Within The Ambani Conglomerate
Reliance Power forms part of the Reliance Anil Dhirubhai Ambani Group, which is founded and majority-owned by Anil Dhirubhai Ambani. Anil is also the chairman of Reliance Power.
Anil is the youngest son of Indian billionaire Mukesh Ambani, the chairman and managing director of Fortune 500 company Reliance Industries (NS:RELI), which is also the most valuable company in India.
The brothers divided their father's business empire a decade ago. While Mukesh, Asia's richest man until fellow Indian billionaire Gautam Adani surpassed him, continued expanding his businesses, Anil is currently having trouble with companies defaulting and being put under administration. Nikkei Asia reported that Anil declared himself to have zero personal net worth.
Reliance Power's affiliate, Reliance Capital, is currently on the market with an investor group, including the Hinduja Group and Oaktree Capital, offering 45 billion rupees for the diversified financial services company, Economic Times of India reported.
Also on offer are India's fifth-largest privately owned general insurance company, a stockbroker, a stake in an asset manager, and Reliance Capital's 51% share in a life insurance venture with Japan's Nippon Life, among other assets.
While it is yet to be seen if the current troubles of its affiliates will spill through Reliance Power, its recent loss will not boost investor confidence. Furthermore, the company's fundraising initiatives are hardly proving that it is in a very secure position in terms of capital.