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REL Investors Feel Duped with Coming RPL IPO Demand Probe Dev Ghosh
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The Investors in the Reliance Energy Limited (REL) are feeling cheated as the Anil Ambani group company, namely Reliance Power Limited (RPL) , proposes to come up with a Public Issue of 130 Crore Equity shares of Rs.2 each. Draft Red Herring Prospectus (DRHP) has been filed with Securities and Exchange Board of India (SEBI) for The RPL IPO, expected to be the biggest issue in the Indian stock exchanges.
A close study of the Draft prospectus filed by Reliance Power limited reveals that the Power Generation Business opportunities secured in the name of Reliance Energy Limited (REL), the reliance group company and those secured with the strength of REL have been transferred to the said Company RPL by means of some internal MOUs & understandings.
The Shareholders of REL have been deprived of the entire power generation business prospects to be accrued to them. By means of such a transfer of business and creation of another shell company to issue public shares, now the power generation profits will accrue to the new company REPL in which Anil Ambani holds 50%. The new Company has no resources at its command for executing these projects and instead is totally dependent on REL for entire support – be it technical, manpower, commissioning, even guarantees for raising finances
Most of the businesses that are shown as Reliance Power's actually belongs to Reliance Energy Limited (REL) and has been recently taken over or transferred. The Anil Ambani Group is planning to charge a huge premium from the public for the Reliance Power shares, but Mr. Anil Ambani's investment companies and Reliance Energy have been allotted 210 crore shares of the company at face value of Rs.2 per share. Only 16 crore shares will be allotted to the promoters at the same price as the public.
This shows that the proposed issue is more of audacious swindling of Indian investors as the investors feel that the proposed IPO would destroy shareholder value of the parent company Reliance Energy Ltd (REL), which is a listed entity.
More over, in other words, the public will be paying a huge premium for Reliance Power shares even though the company is only a shell virtually existing on paper. If the IPO price is fixed at Rs.60, then the promoter will garner Rs.6,000 crore. The loss to the public would be Rs.12,000 crore. The loss to the public and the gain to promoters is on account of the cheaper price (at par) at which shares have been alloted to the promoters.
According to SEBI rules, shares can be issued at a face value of Rs.2 per share only if the price of the share is Rs.500 or above. In case the price is lower, the face value of each share has to be at least Rs.10. If valuation is pushed up through market speculation to price Reliance Power shares at Rs.500, then the gain to promoters would be Rs.55,000 crores. The public, in turn, would stand to lose Rs.1,10,000 crore.
The promoters of Reliance Power have avoided investing the minimum SEBI-mandated equity of 20% at the same price as the public is charged in the IPO. To avoid this stipulation, the promoters picked up a shell company and merged it with Reliance Power before the IPO and enjoyed exemption from the rule. In other words, the entire risk has been passed on to the investors while the Anil Dhirubhai Ambani Group (ADAG) is slated to enjoy huge gains.
Flouting all norms related to corporate governance, the promoters have used another shell company –– Reliance Public Utility Pvt Ltd (RPUPL) –– to corner Reliance Power shares. RPUPL then has a paid of capital of Rs.1 lakh which was increased to Rs.1,000 crore on July 30 this year. Investment companies of Anil Ambani and Reliance Energy invested Rs.500 crore each in RPUPL. Reliance Power, which seems to have been incorporated for the IPO, was merged with RPUPL. Immediately afterwards, an amalgamation scheme was filed with the Bombay high court and approval was obtained on September 27. A day later, Reliance Power allotted 250 crore shares to Anil Ambani's investment company and REL. Now the public will be paying a premium or the shares which the promoters have acquired at just Rs.2 per share.
Released on: Oct 24, 2007
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