The Hindu Business Line : Reliance Power IPO: Ministry may refer issue to SEBI

In trouble
Earlier this month, Reliance Power filed its draft red herring prospectus with SEBI.
According to the complaints, the proposal to transfer all projects from REL to Reliance Power has not been taken to the shareholders of Reliance Energy.

Our Bureau

New Delhi/Mumbai, Oct. 19 The Ministry of Corporate Affairs (MCA) is likely to refer the complaints received on the proposed initial public offering of the Anil Ambani Group company Reliance Power Ltd to the capital market regulator, Securities and Exchange Board of India.

Shareholder value

Official sources told Business Line that the Ministry has received representations from various quarters including some Members of Parliament alleging that the proposed IPO would destroy shareholder value of the parent company Reliance Energy Ltd (REL), which is a listed entity.

“Since the company has already filed its draft red herring prospectus with the capital market regulator, the Ministry is not directly involved. However, in order to ensure that the regulatory norms including those prescribed under the Companies Act are not flaunted, the Ministry is taking necessary precautions,” sources said.

violation

Earlier this month, Reliance Power filed its draft red herring prospectus with the SEBI. According to the complaints, the proposal to transfer all projects from REL to Reliance Power has not been taken to the shareholders of Reliance Energy.

“The projects have been transferred under the agreement of September 14, 2007. This is highly irregular and is in clear violation of Section 293 (1) (a) of the Companies Act,” it has been alleged.

As per the Section, the board of directors of a public company cannot transfer any undertaking of the company without the consent of shareholders.

Credit Rating

Meanwhile, a spokesperson of REL refuted the charge that there is any irregularity in the company having transferred these power generation projects to its group company Reliance Power for execution by it. These projects have been conceived a long time ago and it was the decision of the independent members of the Board of Reliance Energy some time in 2004 that REL’s exposure to these projects be restricted to 50 per cent, he clarified.

Indeed, he added, the decision predates even that of the restructuring of Reliance Industries as part of a settlement among members of the Ambani family, the promoters of Reliance Industries and other group companies.

Execution of projects

The decision was also vindicated by the fact that credit rating agencies had rated the company’s debt instrument at the highest level as the risks of execution of these projects was not on the books of Reliance Energy, he added.

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