Explained: Why Reliance Power shares hit 5% lower circuit today

Despite Friday's drop, Reliance Power shares have surged 64% in a month, gaining 112.82% year-to-date and 171.70% annually.

In Short

• Reliance Power shares drop 5% after major announcement
• Stock sees 64% rally in a month despite Friday's market decline
• Company plans significant expansion into renewable energy sector

Reliance Power shares hit a 5% lower circuit on Friday, with the stock dropping to Rs 50.97 on the Bombay Stock Exchange (BSE). The sharp decline followed the company’s board decision to issue Foreign Currency Convertible Bonds (FCCBs) worth $500 million (approximately Rs 4,200 crore) to affiliates of Värde Investment Partners. The FCCBs will be issued on a private placement basis and carry a low interest rate of 5% per annum.

These bonds are unsecured, with a 10-year tenure, and will be convertible into about 82.30 crore equity shares of Reliance Power at a conversion price of Rs 51, including a Rs 41 premium per share. The conversion price is at a premium to the two-week average closing prices preceding the issue.

Reliance Power’s board also approved the Employee Stock Option Scheme (ESOS), aligning with SEBI's regulations. This will require approval from the company’s shareholders. Despite Friday’s dip, Reliance Power’s shares have seen a significant rally in recent months, surging 64% in the past month alone.

The stock is up 112.82% year-to-date and has gained 171.70% over the past year.

The company has been actively raising capital, recently allotting 46.20 crore equity shares, valued at Rs 1,524.60 crore, to its promoter Reliance Infrastructure Ltd and non-promoter entities Authum Investment & Infrastructure Ltd and Sanatan Financial Advisory Services Pvt Ltd. This funding is expected to fuel the company’s expansion into the renewable energy sector and support other business opportunities.

Reliance Power plans to allocate Rs 803.60 crore of the FCCB proceeds to strengthen its renewable energy portfolio and meet long-term working capital needs. The company has also been working to improve its financial health.

As of June 30, it reported zero debt from banks and financial institutions and a consolidated net worth of Rs 11,155 crore. The company recently settled disputes with CFM Asset Reconstruction Private Limited, which allowed it to pledge 100% of the shares of its subsidiary, VIPL, and discharge a corporate guarantee it had given earlier.

Despite recent gains, the FCCB issuance and stock correction reflect market reactions to the company's evolving financial strategies and capital-raising efforts.