Starting with Reliance Power, the story was one of the roller coaster rides for investors. Back in 2008, it had a stunning debut in the markets with a meteoric listing that saw its stock price surge to an all-time high market cap that nearly went close to the Rs 1.0tn mark, a rare feat in those days which belonged to the elite few. But soon, the cracks begin to show. Regulatory hurdles, project delays, cost overruns, changes in coal policy hit the company hard. The situation deteriorated further when the ILFS crisis shook the credit markets in 2018, leaving many companies unable to roll over their debt. Saddled with huge unsustainable debt and faced with massive challenges in project execution, in a classic textbook fashion, liquidity issues gradually started pushing Reliance Power to the brink of insolvency.
At one point in 2020, its market capitalization dropped below Rs 500 Cr, relegating it to the micro-cap category, a group often seen as outcasts in the investment community. It is another matter that this micro-cap group has become a glorified one that is fancied by all and sundry in the current bull run, though one is not sure how long this fantasy ride would last for the so-called SME stars.
Fast forward to 2024. When everyone thought all is over for ADAG group, it sprang a big surprise when it announced to the exchanges last week that it had successfully settled all its dues to become a debt-free company now. It doesn’t stop here. Next comes the QIP (Qualified Institutional Placement) fundraising for Rs 1,500 Cr+ to institutional investors at a premium. Sure, it will be lapped up as we have witnessed in many recent QIPs. Since the release of this news, stock has been on a continuous upper freeze to take the market cap to over 44 times from its lows it hit in 2020.
This is a classic story of what liquidity or lack of it can do to a business. During the ILFS crisis, it teetered around bankruptcy when liquidity was cut off and now it has risen from the ashes like a phoenix thanks to the surging liquidity in the markets. The same playbook is being scripted now for the group’s another failed venture, Reliance Infra. With infra and power being the hot sectors in the current bull-run, it will not be a surprise if the younger scion’s fortunes take a dramatic upswing, reviving his legacy.
Now, turning the page on the metal magnet, though less gut-wrenching, it is nevertheless interesting to inquisitive investors. It was not a sensational spicy story of bankruptcy to back-to-business scenario. Still, it was stitched with a lot of twists and turns that kept the audience on the edge of the seats. Not long back, it was staring at a default at the promoter-level holding company, Vedanta Resources, because of its inability to roll over overseas debt. With commodity cycle turning its back, India listed arm, Vedanta resorted to excessive leverage to push out dividends to the promoters to fund the holding company to pay up the overdue debt repayments. Investors could see through the devious designs behind the high dividend payouts that were funded by debt in the local listed arm which already had a bloated debt in its balance sheet. This triggered a disorderly exit by investors, causing the stock price to crash in October last year. As fate would have it, misfortunes did not last long, thanks to easy money one could raise from QIP and private placement. One needed an appealing story for QIP. This is where the 6-way demerger plans came in handy. That was enough to raise a billion dollars to fill the million holes in the promoter entity, Vedanta Resources.
The stock is now over 2X from its lows it hit in Oct’23. One should be naïve to think that problems are behind for this group, especially when its balance sheet has a gearing of nearly 3X and that too in a business that is exposed to a highly cyclical commodity sector. But, for the time being, institutional investors are happy to lap up the stock at a hefty premium, hoping to get the best out of the demerger game before the music stops.
Another group that is caught in the quagmire of bad governance and high debt, Zee, could be smelling a sizzling opportunity in the QIP game to resurrect its fallen empire. No surprise that Zee Media in its filing to exchanges last week, announced its plans to call for a board meeting to consider fundraising among other things. Similarly, struggling airline SpiceJet is getting a second life after it has successfully raised funds through a QIP this month. It is not the first time that this company has been rescued from the brink of bankruptcy.
With a history of flirting dangerously close to the edge more times than one can count, it is uncertain whether this latest revival will be its last. Interestingly, the markets have been unusually generous and forgiving. But then again, what else can one expect when the music keeps playing- and has been for so long?
One can go on and on. The common thread in all these stories is that promoters and businesses manage to stage a comeback by taking advantage of the favorable liquidity environment. However, long-term minority shareholders often get the short end of the stick, facing significant dilution as a result of these liquidity-driven revival episodes.
It is no coincidence that the funds raised through QIPs in the first eight months of the calendar year (Rs 58K Cr) have already surpassed the total raised in the entire last year (Rs 52K Cr) and is on its way to hit a record of 10 Bn dollars by year-end. For the “Rise of Phoenixes”, the show has just begun, and endless episodes may be on cards. Viewers will need plenty of patience – and perhaps a lot of spare time – to watch this never-ending saga unfold, all the while hoping that the music doesn’t stop!
(The author is ArunaGiri N., Founder CEO & Fund Manager, TrustLine Holdings Pvt Ltd. Views are own)
