Mumbai: Shares of Reliance Industries Ltd on Friday were trading at a fresh nine-year high after the company proposed to re-structure its shareholding by inter-se transfer of shares.
In intraday trade, the scrip rose as much as 4.42% to touch a high of Rs1,287.80, a level last seen on 23 May 2008. However, the shares closed up 2.04% at Rs1,258.45 in Mumbai while the benchmark index Sensex closed down 0.03%. at 28,832.45 points.
Eight promoter group companies of RIL will buy around 119 crore shares from 15 other promoter group companies in an inter-se transfer. The shares are valued at around Rs1.50 trillion as of Friday’s current price. The selling firms will each retain at least 100 shares of RIL, according to Bloomberg.
Eight group entities of the founders will acquire the shares. These entities include Devarshi Commercials LLP, Karuna Commercials LLP, Tattvam Enterprises LLP, Srichakra Commercials LLP, Svar Enterprises LLP, Vasuprada Enterprises LLP, Shreeji Comtrade LLP and Shrikrishna Tradecome LLP.
The acquisition price would not be higher by more than 25% of Rs1,100.78 (based on trades on the NSE), a notice to the BSE said.
The stock gained over 17% after 21 February when it announced that its telecommunication arm will start charging its customers from 1 April.
“I think RIL is trying to do this for a cost step-up. This will have an implication whenever RIL plans to sell shares and minimise its capital gains tax if long-term capital gains comes in, in future. If it does not come in, there will still be potential gains in MAT (minimum alternate tax),” said a corporate tax expert, on the condition of anonymity.
Cost step-up, according to Investopedia, is the readjustment of the value of an appreciated asset for tax purposes upon inheritance, determined to be the higher market value of the asset at the time of inheritance. When an asset is passed on to a beneficiary, its value is typically more than what it was when the original owner acquired it. The asset receives a step-up so that the beneficiary’s capital gains tax is minimized.
According to data from Bloomberg, 29 brokerages either have a buy or overweight rating, while 10 of them have a hold or neutral. There are no sell ratings on RIL at this point of time.
“We remain cautious on Reliance as we believe high underlying liability on balance sheet leaves little room for equity upside even assuming full upside from downstream projects and reasonable value for Jio,” Jefferies analysts said in a note last week. They have a hold rating on the stock.