Click to play videoMumbai: In a bid to ward off volatility and speculative activity in its share price, the Reliance Energy board has approved buyback of shares worth up to Rs 2,000 crore. The maximum price per share is decided at Rs 1,600.
The REL board has decided to buy back up to 4.5 per cent of the company's fully diluted equity or 25 per cent of its net worth and it will be implemented in two trenches of Rs 800 crore and Rs 1,200 crore. Reliance Energy buyback price has been fixed at 9.6 per cent premium to Wednesday's closing.
The buy-back price represents a premium of over 30 per cent over Rs 1,225 — its lowest so far during calendar year 2008. Shares of the company on Wednesday at Rs 1459.45, down 3.01 per cent, on the BSE.
"The Board of Directors has approved a buy-back of its outstanding equity shares for an aggregate amount of up to approximately Rs 2,000 crore ($500 million), in two phases," the company said in a filing with the Bombay Stock Exchange.
The buy-back would be made from the Reliance Energy's balances of cash and cash equivalents, and is expected to reduce short-term volatility in the company's share price while also deterring any speculative activity in the stock, the company said.
The market valuation post buy-back would also send a strong signal to capital markets on the perceived under-valuation of the company's share price and restore confidence of management in future growth prospects, Reliance Energy said.
The company said its fully diluted equity capital is Rs 279.53 crore and market capitalisation is over Rs 42,000 crore. It expects that reduction in outstanding number of equity shares after buy-back would lead to improvement in earnings per share as well as other financial ratios.
The move would also help in reducing floating stock, leading to an enhanced long-term price performance. However, "there would be no impact on leverage ratios as the company is debt-free at a net level," Reliance Energy said.
(With agency inputs)
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