Reliance Power made a notable announcement on September 17, 2024, revealing the settlement of a substantial ₹3,872.04 crore debt associated with its former subsidiary, Vidarbha Industries Power Limited.
This move marks a significant step in Reliance Power’s ongoing efforts to streamline its financial obligations and shed encumbrances from its balance sheet.
The resolution of this debt is linked to a pledge enforcement on VIPL’s entire equity shareholding. The pledge, involving 1,49,16,260 shares—representing 100% of VIPL’s equity—was initiated by Axis Trustee Services Limited, which acted on behalf of CFM Asset Reconstruction Private Limited and Axis Bank Limited, the principal lenders to VIPL.
As a result, the lenders will now hold all voting rights associated with VIPL’s shares and assume full management and control of the company.
This settlement means that Reliance Power’s obligations as a guarantor for VIPL’s debt have been fully resolved. According to Ramandeep Kaur, RPower’s Company Secretary cum Compliance Officer, this action results in the release and discharge of the corporate guarantee, undertakings, and all associated claims related to VIPL’s outstanding debt.
This move effectively removes VIPL from Reliance Power’s financial structure, with VIPL set to cease being a subsidiary effective September 19, 2024.
On the day of the announcement, Reliance Power’s share price saw a positive movement, closing up 1% at ₹31.41 on the BSE. This increase reflects a favorable market reaction to the settlement and the perceived reduction in financial strain for the company.
The demerger of VIPL has been an anticipated event for investors and analysts, given the subsidiary’s negligible contribution to Reliance Power’s consolidated revenue and its negative net worth of ₹3,086.29 crore reported for the last financial year. VIPL’s financial struggles and minimal impact on the parent company’s overall performance likely resolved this debt a priority for Reliance Power.
Despite the positive movement in Reliance Power’s share price following the announcement, there is a broader context to consider. The stock had recently faced pressure due to trends observed post-bonus issue announcements, with ongoing concerns about the stock’s performance in the near term. A Mint poll reflected investor uncertainty about whether the downward pressure on Reliance’s shares would persist.
The transaction involving VIPL’s debt resolution was not categorized as a related party transaction. The lenders involved are independent entities, not affiliated with RPower’s promoter group or associated companies. This distinction clarifies that the debt settlement is part of standard financial restructuring and not a maneuver within a broader scheme of arrangement.
This transaction does not involve the sale, lease, or disposal of any of RPower’s other assets or undertakings, which reassures stakeholders about the scope and nature of the resolution.
As Reliance Power moves forward without VIPL as a subsidiary, the focus will likely shift to how the company will manage its remaining assets and strategic initiatives. The settlement of this debt could be a positive signal for investors, indicating that the company is making headway in resolving financial challenges and refocusing its efforts on core operations and growth areas.
The settlement of VIPL’s debt represents a significant development for Reliance Power, potentially improving its financial health and simplifying its corporate structure. Investors and market watchers will be keenly observing how this change impacts Reliance Power’s future performance and whether it will contribute to a more stable and profitable trajectory for the company.
