Reliance Energy (REL), a Anil Dhirubhai Ambani Group company, on Wednesday, approved a proposal to buy-back shares up to a maximum price of Rs 1,600 per share.
In effect, this buy-back accounted for a premium of over 30 per cent to the low of Rs 1,225 recorded during the calendar year 2008, and a premium of around 10 per cent to the closing share price on the date of the Board meeting, said a REL release issued to BSE here.
Rs 2,000-cr outlay
REL cleared the buy-back of its outstanding equity shares and earmarked an outlay of Rs 2,000 crore (US$500 million), to be achieved in two phases. An amount of Rs 800 crore (US$200 million) will be expended in the first phase on the share buyback, which represents 10 per cent of the paid-up equity share capital of the Company, and its free reserves.
A further amount of Rs 1,200 crore (US$300 million) will be expended in the second phase, subject to necessary approvals by the shareholders, in terms of the provisions of the Companies Act, 1956 and relevant Sebi guidelines. This amount represents an additional 15 per cent of the paid-up equity share capital of the Company, and its free reserves.
Short term volatility
The share buy-back will be made from the Company’s substantial balances of cash and cash equivalents and is expected to reduce short term volatility in the Company’s share price.
It would deter speculative activity in the Company’s shares and send a strong signal to the capital markets on the perceived under-valuation of the Company’s share price, besides it would reiterate the confidence of management in future growth prospects of the Company.
The shares purchased under the buy-back programme will be cancelled, as required under Sebi guidelines, leading to a reduction in the Company’s outstanding equity capital.
This leads to reduction in the outstanding number of equity shares, and consequently an increase in earnings per share (EPS), while at the same time, it would help improve in return on net worth and other financial ratios of the company.