Mumbai: The board of Reliance Power Ltd approved a three-for-five bonus share issue in a bid to cheer shareholders after a miserable debut for the stock following a record Rs11,500 crore public offer, but one analyst termed the exercise to reward shareholders a “farce” and said a company with no operating revenue has no right to come out with a bonus issue.
The bonus issue of three shares for every five held will bring down the cost of Reliance Power shares to Rs269 for retail investors, as against a discounted offer price of Rs430, and Rs281 for institutions compared with an offer price of Rs450, said Anil Ambani, chairman, Reliance-Anil Dhirubhai Ambani Group (R-Adag), in a conference on Sunday.
The founder-promoters of the company, including Ambani and Reliance Energy Ltd, who together hold 90% of Reliance Power’s equity, will not be issued bonus shares. The promoters, however, had acquired shares in Reliance Power at Rs17 each.
Ambani, also the non-executive chairman of Reliance Power, said he was giving up 2.6% of his shareholding in Reliance Power to Reliance Energy, which owns about 45% of Reliance Power, so its ownership structure remains intact. After the bonus issue and this transfer, Ambani’s stake in Reliance Power will fall 5 percentage points to 40%, while public shareholding will rise to 15%.
“I have been personally concerned by the notional losses arising to millions of our investors as a result of a dramatic change in sentiment in global and domestic capital market after the pricing of our IPO (initial public offering),” Ambani said. “The board endorsed my concern and approved the issue of bonus shares,” he added.
Reliance Power has sought an enquiry by the Securities and Exchange Board of India (Sebi), the stock market regulator, into “hammering” of the stock price, Ambani said.
The share sale of Reliance Power, India’s biggest domestic IPO thus far, was sold out in less than a minute, but on 11 February, when the shares were listed on the exchanges, they plunged and closed at 17.22% below the issue price of Rs450. On that day, Ambani claims,“seven?Mauritius-based investors went on selling within four minutes of the listing even when the market was falling.” “I can understand people selling when the price is going up. There’s more (to this) than meets the eye,” he added.
A play on sentiment
The bonus issue was dismissed as a play on market sentiment by Arun Kejriwal, director, Kejriwal Research and Investment Services, a Mumbai-based advisory firm.
“The ratio is absolutely immaterial, what is more important is whether the stock will be able to withstand the selling pressure if the share price crosses the IPO price of Rs450,” said Kejriwal.
“What the company (Reliance Power) is trying to do is to win sympathy from the market, as it has other floats in the pipeline,” Kejriwal added. R-Adag has filed a draft red herring prospectus 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. “We are awaiting Sebi approval and will go ahead (with the share sale) depending on market conditions,” Ambani said.
Not everyone buys Kejriwal’s argument.
“The company needed to demonstrate its commitment, considering this was the largest IPO and that retail investors had invested money in such numbers,” Chakri Lokapriya, who manages $575 million (Rs2,300 crore) of Indian stocks at BNP Asset Management in London, said before the announcement. “The issue was priced at a time when the market was at its peak.”
Less than a week after the listing, the management of Reliance Power announced that its board would meet on 24 February to consider a bonus share plan to all categories of shareholders, excluding the company’s founder group. The announcement improved sentiment last week with shares of Reliance Power gaining 7.5% on 18 February, the most since listing, after the bonus plan was announced.
However, at Friday’s close of Rs416.85 on the Bombay Stock Exchange, the shares were still trading at a discount to their issue price.
Reliance Power plans to set up 13 plants with 28,200MW of generating capacity in five years, one-third of India’s planned projects in power. However, the first of these plants will only start production in 2010 and the company is unlikely to report strong profits for five years.
Other analysts who did not wish to be identified said that with 63.9 million shares of Reliance Power changing hands on the day the stock listed, several investors are likely to have already sold their shares in the company. They added that despite the bonus issue, the company remains overvalued compared with its peers.
Bloomberg’s Archana Chaudhary and Reuters’ Rina Chandran contributed to this story.