By IANS
Mumbai : Reliance Energy Ltd (REL), a part of the Anil Dhirubhai Ambani Group, Wednesday said it was ready with funds worth Rs.20 billion ($500 million) to buy back its shares at Rs.1,600 each, at a market premium of 9.5 percent.
The buyback, in two phases, is aimed to bring back lustre into the company’s shares, which have seen a high of Rs.2,631.70 and a low of Rs.450.50 in the past 52 weeks.
“An amount of $200 million will be expended in the first phase on share buyback, pursuant to approval granted by the board of directors,” the company said in a mandatory filing with the bourses.
“This amount represents 10 percent of the paid-up equity share capital of the company and its free reserves,” said the filing after the board meeting chaired by Anil Ambani here.
Ahead of the announcement, the company’s share closed at Rs.1,459.45 Wednesday at the Bombay Stock Exchange (BSE), to register a loss of Rs.45.30, or 3.01 percent, over the previous day’s close.
The company said the buyback would reduce short-term volatility in the company’s share price, deter speculative activity in the company’s shares and send strong signals to the capital markets on the perceived under-valuation of its shares.
The move is also intended at reiterating the confidence of management in future growth prospects of the company, the company’s filing said, adding its market capitalisation currently stands at $10.5 billion.
REL was the top performer in the benchmark sensitive index (Sensex) of BSE in 2007, when its share price quadrupled. Prices have, however, fallen more than 30 percent so far this year.
The move comes just 10 days after Reliance Power Ltd, another group company in which REL owns 45 percent, offered three bonus shares to its retail investors for every five held.
Typically, managements initiate a buyback if they believe their company’s shares are undervalued and the market price does not reflect the fundamentals.
By supporting the stock price at a certain level, the company can absorb any amount of selling by investors.