Shares of Reliance Power Ltd. experienced a decline in Wednesday's trading following a significant action by the Enforcement Directorate (ED). The agency issued a provisional seizure order for shares valued at ₹2,026.65 crore in Sasan Power Ltd., a wholly owned subsidiary, along with ₹6.16 crore in bank balances.
ED Action Under FEMA
The seizure order was executed under Section 37A(1) of the Foreign Exchange Management Act (FEMA), 1999. According to Reliance Power, the ED's action is connected to foreign currency convertible bonds (FCCBs) issued in 2006 and an overseas investment made in a Singapore subsidiary in 2008.
Reliance Power has stated that all transactions in question were undertaken with the necessary regulatory approvals. The company vehemently disputes the allegations of any contravention of Section 4 of FEMA.
Company Response and Financial Implications
The power generation company clarified that the seizure is provisional and awaits confirmation from the competent authority, as stipulated under Section 37A of FEMA. Reliance Power is currently evaluating the potential financial implications of this order. It also highlighted that no penalty has been imposed as part of the current enforcement action.
In a regulatory filing, Reliance Power affirmed its intention to "take all appropriate steps to safeguard its interest as well as the interests of all its shareholders and other stakeholders, as may be legally advised."
It was further disclosed that the seized Sasan Power shares were already pledged in favor of Power Finance Corporation Ltd., a Government of India undertaking. These security arrangements have been in place for over a decade. The ED's order now restricts Reliance Power from transferring, selling, pledging, encumbering, or otherwise dealing with these seized assets.
Market Impact
On the day of the announcement, Reliance Power shares initially dropped 2 per cent, hitting a low of ₹19.74 apiece from their previous closing price of ₹20.05 per share. The stock had opened at ₹19.85.