Reliance Power - targeted by FIIs ?

It’s well known that Anil Ambani’s Reliance Power lost 17% to close on Rs 372.50 against the issue price of Rs 450 on its debut on the stock exchanges. But what’s not known is that a handful of Mauritius-based foreign institutional investors (FIIs) and a domestic bank offloaded their entire or almost entire shareholding in the company within minutes of the opening bell.

The stock opened with a handsome premium at Rs 530 on NSE and Rs 547.80 on BSE at 9.55 am. But within four minutes, it went down by 26% to Rs 389.80 on NSE. The fall was even sharper on BSE by 28% to Rs 395. In other words, it fell almost 7% a minute, resulting in erosion of shareholders’ wealth of Rs 30,000 crore.

Reliance Power is well aware of the price hammering on the first day. Incidentally, all companies of Mr Ambani’s group were down by 10-20% on that day. In a letter written on February 15, Reliance Power has requested the market regulator to investigate the matter in line with the Sebi ( Prohibition of Fraudulent and Unfair Trade Practices) Regulations.

The letter, which was addressed to the Sebi chairman, has demanded the regulator investigate all relevant information and data from the stock exchanges, including the quantities of shares sold, the identity of the brokers and their clients, the pattern and timing of the sales and the funding of margins, stock lending under the FII route and P-notes.
The very nature of the stock trading demands that the price should move in both directions. So what’s so special about it? The answer, perhaps, lies in the way the FIIs exited from the counter within minutes by selling their shares at a price lower than their purchase cost.

A closer look at the trading data indicates that as much as 23.77 million shares, 10.4% of the total 228 million shares sold through the Reliance Power IPO, changed hands on the twin bourses of Mumbai within the first four minutes of trade. More interestingly, the entire sale took place at the price ranging between Rs 443 and 392, lower than the allotment price of Rs 450. “They did not mind to exit at a loss, but did not have the patience to continue for a few more days, forget months. Why did they apply for the issue?” asked a city-based broker who did not wish to be named.

Three FIIs sold out their entire allotment of 2.6 million shares each during the period. Five other FIIs sold almost their entire holdings - they sold 2.47 million, 2.46 million, 2.45 million, 1.99 million and 1.68 million, respectively while a domestic bank sold 1.69 million.

A person close to the development said some sell orders were made at progressively declining prices - completely irrational to a seller- pointing towards a concerted attempt at hammering at the counter. In some cases, the visible quantity of sale orders was much larger than the traded quantity, leading to the suspicion that large quantities were displayed to create panic, and they were withdrawn. “All this points out towards a possibility of a pre-meditated manipulation of the Reliance Power order book to create a negative sentiment,” he added.

The Reliance Power board will meet on Sunday to consider issue of bonus shares to the shareholders, excluding the promoters. The company said promoters would accept the dilution in their shareholding in the broader interest of investors.

The IPO had closed on January 18 by creating a history of sort when it got investment commitments of Rs 750,000 crore from nearly 500 institutional investors and five million retail investors. Subsequent to the closing of the IPO, the global and Indian equity markets suffered an extra-ordinary meltdown, with all benchmark indices down 15-20 % and leading Indian stocks lower by 20-40%.

Some people also blame the management for ‘over-pricing’ the issue. Indirectly, the management agrees to it by announcing that it will consider issue of free shares to the non-promoter shareholders. The stock on Wednesday closed at Rs 408.20 on BSE, 1.23% lower than Tuesday’s close.