SEBI puts curbs on Reliance Power offer

Market regulator Securities and Exchange Board of India (SEBI) has placed some restrictions on the impending initial public offering of Reliance Power and has asked the company and its merchant bankers to ensure all disclosures as per the relevant laws and the board's own comments on the prospectus that may follow.

SEBI was considering a complaint by Rajkot Saher Jilla Grahak Suraksha Mandal on the issue. Reliance Power is a 50:50 joint venture between Reliance Energy and AAA Projects, which is an Anil Ambani Group company. The proposed public issue could be the largest ever in India.

The regulator directed on Thursday that the entire 20 per cent of the promoter's share in the company should be locked-in for 5 years instead of 18.6 per cent as proposed in the Draft Red Herring Prospectus.

It has also noted that the company has withdrawn its application to split the shares of a face value of Rs 10 to those with a face value of Rs 2 and pointed out that guidelines mandate that in case the offer price is less than Rs 500 the shares may not be split.

The gist of the complaint was that by engineering a merger prior to the issue, the promoters have managed to misuse an exemption allowed by clause 4.6.4 of the guidelines for public issues. This would allow the promoters to not contribute any capital as a part of the issue.

The spokesperson for Reliance Power declined to comment on the issue.

SEBI also said: "The sequence of dates of the issue of shares to promoters, approval of the scheme of amalgamation, filing the same with the Registrar of Companies, allotment pursuant to the scheme and subsequently splitting the shares so allotted for the face value of Rs 2 each and filling DRHP with SEBI offering 130 crore of its equity shares with a face value of Rs 2 at a premium to the public could no doubt be interpreted and conceived as a device to bring the case under the exemption of clause 4.6.4."

SEBI noted "that the number of shares issued as a result of the amalgamation as a proportion of the total paid up capital of the issuer company is very high in the case of RPL (around 50 per cent)…" The regulator, however, said that some of the other issues raised in the complaint were not within its jurisdiction.