Reliance Capital Share to be Delisted From Stock Exchange

Introduction

The world of finance is full of surprises. Sometimes, they are pleasant, like when your shares soar to new heights. Other times, they are devastating, like when your shares vanish overnight. This is the story of Reliance Capital, a company that went from riches to rags in a matter of months. Let’s explore how this happened and what it means for the shareholders who are left in the dark.

The Delisting Drama

One of the worst nightmares for any investor is to see their shares delisted from the stock exchange. This means that their shares are no longer traded, and they lose their value and liquidity. This is exactly what happened to Reliance Capital, a financial services company that was once part of the Reliance Group, one of India’s largest conglomerates. On June 11, 2023, the company announced that it would voluntarily delist its shares from the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), citing regulatory hurdles and financial constraints. This shocked and angered the shareholders, who felt betrayed and cheated by the management.

 

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Delving into the Shareholding Pattern

To understand the magnitude of the delisting, we need to look at the shareholding pattern of Reliance Capital. As of March 31, 2023, the company had a total of 252.6 million shares outstanding, of which only 12.8 million (or 5%) were held by the promoters. The rest, a whopping 239.8 million (or 95%), were held by the public, including retail investors, mutual funds, banks, insurance companies, and foreign portfolio investors. This means that the majority of the shareholders were ordinary people who had invested their savings in the company, hoping for a good return. They were the ones who suffered the most from the delisting, as they saw their shares become worthless overnight.

 

 

Behind the Scenes - Why the Delisting?

The delisting was not a sudden decision, but the result of a long and painful decline of Reliance Capital. The company had been struggling with a massive debt of over ₹40,000 crores, which it had accumulated over the years by expanding into various businesses, such as insurance, asset management, home finance, commercial finance, and media. However, these businesses failed to generate enough profits to service the debt, and the company started defaulting on its obligations. The situation worsened in 2021, when the Reserve Bank of India (RBI) took over the company’s operations and initiated a resolution process. The RBI invited bids from potential buyers, but none of them met the expectations of the creditors. The process dragged on for months, until June 2023, when the Hinduja Group, a diversified business group, emerged as the successful bidder.

 

 

The Hinduja Group Takeover

The Hinduja Group, led by brothers Srichand, Gopichand, Prakash, and Ashok, agreed to pay ₹9,650 crores to acquire Reliance Capital, subject to regulatory approvals. The deal was approved by the National Company Law Tribunal (NCLT) on February 27, 2024, paving the way for the takeover. The Hinduja Group planned to infuse fresh capital and revive the company’s businesses, especially the insurance and asset management segments, which had a large customer base and growth potential. The takeover was seen as a ray of hope for Reliance Capital, which had been on the verge of collapse.

 

 

Zero Payment to Shareholders

However, the takeover came with a bitter pill for the shareholders. According to the resolution plan, the liquidation value of Reliance Capital was zero, which meant that there was nothing left for the shareholders after paying off the creditors. The liquidation value is the amount that can be realized from selling the assets of a company in a distress situation. It depends on the net assets, which are the difference between the total assets and the total liabilities. In the case of Reliance Capital, the net assets were negative, as the liabilities exceeded the assets by a huge margin. Therefore, the liquidation value was zero, and the shareholders were left with nothing.

 

 

Conclusion 

The Reliance Capital saga is a cautionary tale for investors, who need to be careful and vigilant about their investments. It shows how a company can go from being a market leader to a basket case in a short span of time, due to poor management, excessive debt, and external factors. It also shows how shareholders can lose everything, if they are not aware of the risks and the rights associated with their shares. The financial world is constantly changing, and investors need to adapt and diversify their portfolios, to avoid putting all their eggs in one basket. As the saying goes, “Don’t put your trust in money, but put your money in trust.”