The Hindu Business Line : REL board okays Rs 2,000-cr buyback at Rs 1,600/share

Mumbai, March 5 The board of Reliance Energy Ltd on Wednesday approved a Rs 2,000-crore share buyback, in a bid to shore up its market value. The company proposes to buy its own share at a maximum price of Rs 1,600 each, which is at a premium of about 10 per cent to its closing price on Wednesday. REL closed at Rs 1,459.45 on the BSE today, down by 3.01 per cent over the previous close.

In the first phase, which would start in the next 10 days, the company would invest Rs 800 crore. The balance of Rs 12,000 crore would be deployed in the second phase which would commence after 45days, as the company has to obtain shareholders’ approval, said Mr Lalit Jalan, a Director of the company.

The scheme will remain open up to one year or till the entire amount is utilised. The second phase will commence only after the first phase is completed, he said

The amount to be utilised represents 25 per cent of the company’s net worth (paid up capital and its free reserves), he said.

The shares will be bought on both the BSE and the NSE through open market purchase.

Talking to Business Line, he said if the proposed amount of Rs 2,000 crore is fully deployed, then the company would be able to buyback 5.7 per cent of its shares.

Incidentally, on December 2, 2007, the company’s board had decided to go in for a capital infusion of Rs 8,000 crore into the company through a preferential offer. The buyback comes just after 90 days, said an analyst.

Clarifying the company’s position, Mr Jalan said the company required additional capital for its expansion plans and funds were raised in December 2007.

Now the board of directors feel that the company’s share has been devalued, therefore it is going for a buyback. All international companies take similar actions, he said.

In a BSE notice, it said that the share buyback will be made from the company’s substantial balances of cash and cash equivalents.

It is expected to reduce short-term volatility in the company’s share price, deter speculative activity and send a strong signal to the capital markets on the perceived under-valuation of the company’s share price.

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