Anil Ambani firms hit new lows after ratings downgrade of financial arms

The Anil Ambani group’s all seven listed firms were under heavy selling pressure on Tuesday — two touched new all-time lows — after its financial arms, Reliance Home Finance (RHFL) and Reliance Commercial Finance (RCFL), were downgraded to ‘below investment grade’ by CARE Ratings.
 
While the group tried to assuage investor concerns by reiterating that its asset monetisation plans were on track, the stock market action indicated that investors were hardly convinced. The group companies’ shares fell between 2 and 18 per cent on Tuesday and weighed on the overall market sentiment, with non-banking financial stocks also facing selling pressure. Reliance Power saw the biggest drop as the company’s shares fell 18 per cent, while Reliance Infrastructure ended with losses of about 10 per cent, closing at a share price of Rs 108. The group firms that touched all-time lows were Reliance Communications and Reliance Power.
 
Experts said the weakness in the group stocks could have been caused by concerns over the invocation of pledged shares by lenders for recovering their dues. On Tuesday, IDBI Trusteeship in a disclosure stated that it had invoked 76.2 million shares of Reliance Power in April. “As default of the terms of the transaction documents have been committed by the issuer company(ies)..”, was cited as a reason by the debenture trustee. These shares were pledged as security for non-convertible debentures (NCDs) of Rs 500 crore issued by Reliance Infrastructure and NCDs of Rs 300 crore by Reliance Project Ventures and Management.
 
Experts said the latest sell-off could prompt lenders to further invoke the pledged shares.           
 
Barring Reliance Nippon Life Asset Management, all the Anil Ambani group companies have promoters’ shares pledged.
 
The exchange disclosures showed that Reliance Infrastructure has the highest levels of promoter pledging. As of March 31, 98 per cent of the promoter shares were pledged. In the case of Reliance Capital, the holding company for all the financial businesses of the group, 96 per cent of the promoter shares are pledged.
 

Nearly Rs 4,000 crore worth of promoter shares pledged with various mutual funds (MFs) and non-banking financial companies (NBFCs) could see stress if the stock price fall continues, experts said.
 
In February, amid a similar sell-off in Anil Ambani group stocks, certain lenders had sold off the pledged shares of the promoters to recover their dues. Market players said the recent events had once again put the spotlight on the contagion risks from debt market events.
 
“Unless these companies (RHFL and RCFL) are able to monetise their assets soon, they will face more problems in servicing their debt on time. If a default happens, there could be further repercussions for mutual fund holdings in these papers. As a result, the unitholders will be at the receiving end. This cycle could keep mutual funds jittery on their debt market investments,” said Deepak Jasani, head of retail research at HDFC Securities.
 
“As and when investors start making full and adequate provisions, we will start seeing the actual damage to book values, reserves and profits of the mutual fund investors,” he added.
 
Already, mutual funds are facing troubles over their debt exposures. The data collated from Morningstar and Value Research showed that MFs had more than Rs 20,000 crore of debt exposures to four stressed groups -- Essel, Anil Ambani group, Dewan Housing Finance (DHFL), and Infrastructure Leasing & Financial Services (IL&FS).
 
On Monday, Reliance Capital stated that its asset monetisation plans should conclude soon and it could raise more than Rs 10,000 crore. According to market experts, the group stocks could see some relief if the group is able demonstrate meaningful progress on its asset monetisation plans.