Retail investors, bondholders feel the pinch as Reliance Capital moves towards bankruptcy

Public investors—both shareholders and bondholders—of Anil Ambani-promoted Reliance Capital stand to lose the most after the Reserve Bank of India (RBI) superseded its board and moved towards finding a solution to settle the debts of the bankrupt financial services company.

Reliance Capital is registered as a core investment company with the RBI, with investments in general and life insurance, asset management, stockbroking, housing finance, wealth management and asset reconstruction.

What has the RBI done and what happens next?

The central bank has appointed former Bank of Maharashtra executive director Y Nageswara Rao as the administrator to head Reliance Capital’s board. The RBI will approach the National Company Law Tribunal in the next few days to admit the company for corporate insolvency resolution process.

What has the company said about the whole issue?

Reliance Capital said it will cooperate fully with the administrator appointed by the RBI for expeditious resolution of its debt in the best interests of stakeholders.

How big is the public shareholding in Reliance Capital?

Since December 2018, when he had held a stake of more than 52%, Ambani managed to pare his holdings in Reliance Capital down to less than 2% by March 2020.

These shares, offloaded by Ambani, were picked up by public shareholders, who will now take a major hit, even as the former promoter walks away barely hurt, The Hindu Business Line newspaper said in a report.

Public shareholders hold a 97.85% stake in Reliance Capital while the ousted promoter-chairman Ambani owns just 1.51%. Retail individual shareholders with a share capital of up to Rs 2 lakh hold as much as 57.53% of the company, stock-exchange data show.

Foreign portfolio investors, who held as much as 22.74% as on June 30, 2019, owned just 0.43% as of September 30, 2021. State-run Life Insurance Corporation is the single-largest shareholder of Reliance Capital with a stake of 2.98%.

How have Reliance Capital’s shares performed?

Shares of Reliance Capital fell by their maximum limit of 5% on Wednesday to Rs 17.20 apiece, giving the company a market value of Rs 434.66 crore. The shares have lost nearly half their value in the last six months but are still double the level hit in December last year.

More importantly, the shares have lost more than 90% since early 2019. This means any retail investor who bought the company’s shares when Anil Ambani was in the selloff mode would have lost big money.

How well do Reliance Capital’s bondholders fare?

Reliance Capital’s bondholders are set to recover just about half the original value of their holdings, a report in The Economic Times says.

Large institutional investors, including LIC and Employee Provident Fund Organisation (EPFO), collectively own about Rs 6,000 crore of Reliance Capital’s bonds.

The company’s total outstanding bond holding is of the order of Rs 15,000 crore, the report noted.

Citing Vistra ITCL, the debenture trustee for the bonds, The Economic Times report said that as of September 2019, the quantum of debt held through these instruments was Rs 16,273.53 crore

How frequently are these bonds traded though?

These bonds are not frequently traded in the secondary market, The Economic Times report noted. In October, about Rs 490 crore worth of paper with five-year residual maturities changed hands in three transactions. They yielded above 50%. Two Singapore-based distressed investors were said to have lapped up those securities from local banks, the report said, without naming these entities.

What did institutional investors do about the debt facilities they owned?

They sold them to other entities. A few months ago, Ares SSG Capital-backed Assets Care & Reconstruction Enterprise acquired debt facilities from HDFC and Axis Bank at 27-28 paise on a rupee, The Economic Times reported.

ACRE, an asset reconstruction company, purchased a Rs 524-crore term loan from housing finance company HDFC Ltd and a Rs 100-crore term loan and Rs 490-crore non-convertible debentures from Axis Bank, the report said.