Reliance Power, a major player in the energy industry in India and a division of Anil Ambani's group has seen a significant drop in its share price. The company's shares closed at ₹50.97 on October 4, 2024, after falling below the lower circuit limit of 5%. The decline comes after the company announced the issuance of foreign currency convertible bonds (FCCBs) to raise ₹4,200 crore, or about $500 million.
Details of the Fundraising Plan
The board of directors of Reliance Power has approved the issuance of these FCCBs, which have a tenor and carry a very low interest rate of 5% per annum. The bonds will be privately arranged with subsidiaries of international alternative investment company Varde Investing Partners.
At a conversion price of Rs 51 per share, these unsecured FCCBs can be converted into approximately 82.30 crore equity shares. Reliance Power has made a deliberate strategic choice by opting to raise capital through FCCBs, as the company's share price has risen 112% so far this year and over 170% in the last 12 months. This has happened even though the benchmark Nifty 50 index has risen only 30% in the market.
Market Reaction and Profit Booking
The FCCB statement has received a largely negative response from the market, partly due to profit booking after the recent surge in Reliance Power shares. The stock had surged 64% in the past month alone. Investors were concerned about this sharp price rise, leading to a sell-off that further exacerbated the recent decline.
Recent Developments and Future Outlook
Reliance Power had earlier issued 46.20 crore equity shares worth ₹1,524.60 crore to two non-promoter firms and its parent company Reliance Infrastructure Ltd to raise its capital. The issue is aimed at increasing the company's portfolio of renewable energy, a key area of focus given the market situation.
Despite the recent difficulties, the firm may have future growth prospects if it uses the ₹803.60 crore raised in additional funding to improve its renewable energy activities. However, analysts wonder whether Reliance Power's share price can continue to rise and wonder if it will fall to the earlier low of ₹30 per share.
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