The Hindu Business Line : Reliance board to consider share buyback on Dec 27

RELIANCE Industries Ltd has called a meeting of its board of directors next Monday to discuss buying back equity shares from investors who want to exit.

The company on Monday informed stock exchanges that a share buyback would be among the topics the board would discuss on December 27.

The meeting comes within days of the Vice-Chairman and Managing Director, Mr Anil Ambani, calling for a meeting to discuss issues of importance, including the resignation of one of the senior most members, Mr M.L. Bhakta.

According to a company source, the buyback proposal is a reaction to the fall in RIL share price ever since differences between the Ambani brothers became public.

"The company strongly believes that its shares are significantly undervalued. ... A share buyback is a strong signal of confidence in the share price and company performance and seems, at present, to be the best option to counter speculative activities that could be detrimental to the interests of RIL shareholders," the source said.

The RIL stock has fallen 12 per cent from Rs 544 on November 17, the day Mr Mukesh Ambani hinted in a television interview that all may be not well within the family. The stock was quoting at Rs 480.65 at close of trading on Monday.

The volatility is totally inexplicable because nothing has fundamentally changed in business strategy, operational efficiency or future outlook of earnings growth, the source said.

"This (buyback) should have come much earlier," said a senior analyst at a local broking firm. "Shareholders have been expecting the company to either deny the rumours of dispute between the promoters or announce a buyback to protect share prices."

Foreign broking firm CLSA last week said in a report to its clients that it was worried that investors may have to bear the pain of continued underperformance by the RIL stock. "Notwithstanding attractive valuations and strong industry fundamentals (both the refining and petrochemicals cycles are in a sweet spot), Reliance has been a major underperformer among the Sensex stocks over the past three months. The much-publicised family dispute has been a big drag on the stock," it had written to clients.

Reliance had last kept a share buyback programme open from April 2000 to June 2002, offering Rs 303 per share. The Rs 1,100-crore programme did not get a single share then.

While RIL will finalise its plan only next Monday, the big question being asked is what premium the company would offer.

According to analysts, buybacks usually offer a premium of 20-30 per cent over ruling prices. This means an offer price of Rs 580-Rs 625 per share in the case of RIL. Given that the RIL stock was priced at Rs 545 in mid-November but is Rs 480 now, a premium of Rs 65 could be viewed as fair. But that may not see small shareholders opting out, they said.

"The buyback offer seems to be more an effort to lend confidence to the market. It is a psychological ploy used by companies when their shares get hammered. This alone may not set right matters in the market, though it did stem further fall (of RIL stock) today. The two (Ambani) brothers will need to settle issues one way or the other before the market responds positively," a merchant banker said.

More Stories on : Petroleum | Buyback | Corporate Disputes

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