Thursday 6 March 2008

Reliance Energy Plans $500 Million Buyback After Drop

Reliance Energy Ltd., India's best performing benchmark company last year, plans to spend as much as 20 billion rupees ($500 million) buying back stock after shares in the group slumped this year.

Chairman Anil Ambani and other directors today approved a plan to buy stock at 1,600 rupees apiece, a 9.6 percent premium to today's closing price on the Bombay Stock Exchange. Ambani last month offered shares to investors in his other generating business, Reliance Power Ltd., after the stock slumped 17 percent on its first day of trading.

``The message would be: Don't short my stock,'' said R.K. Gupta, who manages the equivalent of $120 million at Taurus Mutual Fund in New Delhi. ``Ambani will set a floor price and restrict the downside.''

Reliance Energy quadrupled in value in 2007 as the government pledged to boost spending on power generation and distribution. Anil Ambani embarked on the Reliance Power IPO after a break with brother Mukesh and the splitting up of the Reliance empire founded by father Dhirubhai Ambani.

Reliance Energy fell 45.3 rupees, or 3 percent, to 1,459.45 at the close, having dropped as much as 5.9 percent earlier. The stock's decline is almost double the benchmark Sensitive Index's 18 percent fall.

Two Phases

The buyback will be done in two phases, the company said. In the first phase, as much as 8 billion rupees will be spent, with the remaining 12 billion rupees being expended in the second phase, subject to shareholder approval.

The buyback is to ``reduce short-term volatility in the company's share price and deter speculative activity'' in the stock, the Mumbai-based company said in a statement.

Unit Reliance Power said on Feb. 24 it would give three shares for every five held after the stock slumped 17 percent on the day of listing. The company attracted a record $189 billion worth of bids for the shares it sold in India's biggest initial public offering.

Reliance Power, which raised $3 billion in January, has closed above 450 rupees, the maximum price at which the stock was sold, only on Feb. 25. Individual investors paid 430 rupees for each share in the IPO and institutional investors paid 450 rupees. Reliance Power fell 4.1 percent to 376.25 rupees today.

The free shares will reduce the cost of acquiring Reliance Power shares to 269 rupees for individual investors, 40 percent lower than the IPO price. For large shareholders, the rate will fall to 281 rupees a share.

`Personally Concerned'

The free shares won't be given to Ambani and the founder group, including Reliance Energy, which hold a combined 90 percent stake. Ambani plans to set up 13 plants with 28,200 megawatts of generating capacity in five years, a third of India's planned new projects.

The Anil Dhirubhai Ambani Group has filed to sell shares in Reliance Infratel Ltd., the transmission-tower unit of Reliance Communications Ltd., India's second-largest operator of wireless services. The company plans to sell 89.1 million shares, or 10.1 percent of Reliance Infratel, according to a release sent to the Bombay Stock Exchange on Feb. 4.