Mumbai: Anil Ambani, chairman of Reliance-Anil Dhirubhai Ambani Group (R-Adag) is out to woo shareholders. Two days after Reliance Power Ltd announced it would give free shares to investors to make up for losses they suffered after the stock listed below its issue price, Reliance Energy Ltd, which owns 45% of Reliance Power, said its board would meet on 5 March to consider a buyback of equity shares. Analysts see in this move an attempt to arrest the fall in share prices and improve investor confidence.
Shares of Reliance Energy closed 4.59% up at Rs1,697.25 on Tuesday, but are still down more than 35% from their peak of Rs2,631.70 recorded on 10 January. The Bombay Stock Exchange’s benchmark Sensex index has fallen 16.04% to 17,806.19 in the same period. The stock had risen more than 4% on Monday as well after Ambani clarified that the Reliance Power bonus issue would not affect Reliance Energy’s holding in that firm.
Ambani will transfer 2.6% of his shareholding in Reliance Power to Reliance Energy to help the company retain its 45% stake after the bonus shares are issued.
On Sunday, the board of Reliance Power approved a three-for-five bonus share issue to cheer shareholders after a miserable debut for the stock following a record Rs11,500 crore public offer. The founder-promoters of the firm, including Ambani and Reliance Energy, which together hold 90% of Reliance Power’s equity, will not be issued bonus shares.
“The management is trying to regain investor confidence and since they have another IPO (initial public offering) in the offing, it is important for them that investors be positive about the group,” Suraj Saraogi, managing director at Keynote Capitals Ltd, said. Reliance Energy is a cash-rich company, it can afford to buy back shares, he added.
R-Adag has filed a draft prospectus with the capital market regulator to sell shares in Reliance Infratel Ltd, a unit of Reliance Communications Ltd. The company plans to sell 89.1 million shares, or 10.1% of Reliance Infratel and is awaiting the regulator’s approval.
The head of research at a Mumbai-based brokerage, who did not wish to be named, did not agree with the decision to go in for a buyback at this time. “They are in a capital intensive business and should conserve cash for their expansion projects,” he said. According to him, the firm’s move is to keep investor sentiment up so that its IPOs generate interest in the market.
Another expert who, too, did not wish to be named, said pricing would be key to the success of the buyback offer.
Reliance Energy was the biggest gainer among Sensex stocks in 2007, but has fallen more than 20% in 2008, compared with a drop of about 12% in the benchmark index. Reliance Energy rose 307.87% in 2007, outperforming the Sensex, which rose about 45%.
In May, Ambani, through AAA Project Ventures Pvt. Ltd, a family-promoted firm, acquired 13.23 million shares of Reliance Energy from Reliance Capital Ltd. The prevailing market price on the acquisition date was Rs506.65 a share. The shares are now worth more than Rs2,245 crore at current market price. The stock has risen more than 200% since May.
In January, Reliance Energy raised about Rs7,835 crore by allotting 43 million warrants convertible into equity shares to AAA Project Ventures. On conversion of these warrants, the promoter stake will increase to around 44% from about 34.68% as on December 2007. The buyback of shares, which is generally done from non-promoter shareholders, will further increase the promoter shareholding in Reliance Energy.
(Mobis Philipose contributed to this story.)