Lenders Dump Anil Ambani Group After $1.8 Billion of Value Wiped Out

(Bloomberg) -- Lenders dumped shares of Anil Ambani companies after the of the collateral plummeted following a selloff that wiped 126 billion rupees ($1.8 billion) off the group’s market this month, adding to the litany of woes plaguing the Indian billionaire.

Creditors sold 5.5 billion rupees of shares in four companies -- Reliance Power Ltd., Reliance Infrastructure Ltd., Reliance Communications Ltd. and Reliance Capital Ltd. -- leading to a 3-to-8 percentage-point reduction in founders’ stakes in these firms, according to filings. The sale by firms including L&T Finance Ltd. and Edelweiss Group is “illegal, motivated and wholly unjustified,” the group said in a statement.

Fragile investor sentiment for the Anil Ambani group was dealt another blow after its wireless unit, Reliance Communications, said last Friday it plans to file for bankruptcy. The selloff spread to other group firms, eroding the of the shares pledged as collateral. IDBI Trusteeship Services Ltd., which held Reliance Power shares, said it sold the assets as the borrowers “defaulted on the terms.” Edelweiss said its sale of shares is legal.

“Despite our best efforts, not only did Reliance ADAG Group fail to address any of the concerns raised by Edelweiss Group, but also continued to breach contractual obligations,” Edelweiss said in a statement.

Reliance Communications has seen its market drop by more than half this week, while shares of Reliance Power and Reliance Infrastructure have crashed almost 60 percent each. Reliance Capital has tumbled 32 percent. Friday’s rebound shouldn’t be seen as a “positive development,” said Rajnath Yadav, an analyst at Choice Equity Broking Pvt. in Mumbai.

“Investors must be highly cautious while investing in stocks of companies that have filed for bankruptcy,” he said. “They should stay away from such stocks.”

The share pledge problem has also engulfed other Indian companies. Media tycoon Subhash Chandra’s Essel Group signed a pact with its lenders that protects the group’s borrowings against shares from being counted as default until Sept. 30, even if their erodes. The accord followed the 27 percent slump in the flagship Zee Entertainment Enterprises Jan. 25.

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