Reliance Energy to buy back shares at Rs 525

Receives shareholder approval for hiking its preference share capital by Rs1,500cr to Rs1,850cr.

The power arm of India's largest industrial house, Reliance Energy, yesterday announced a buyback of its equity shares at a maximum price of Rs 525 per share. It has earmarked Rs 350 crore for the purpose.

The company also obtained shareholders' approval today for hiking its preference share capital by Rs 1,500 crore to Rs 1,850 crore.

The Reliance Energy board approved the share buyback for an amount of up to Rs 350 crore, being the maximum amount that the board is authorised to deploy for this purpose, as per the provisions of the Companies Act, 1956, and prevailing Securities and Exchange Board of India regulations.

The 75th annual general meeting of Reliance Energy was preceded by high drama, with activists of the Janata Dal (S) and the Bombay Electrical Workers' Union staging protests.

Janata Dal activists were protesting against the tariff of around Rs 4 per unit being charged by the company. They demanded that the company supply power at the tariff being charged by BEST.

The Bombay Electrical Workers' Union, on the other hand, complained that after the company (formerly known as BSES) was taken over by the Reliance group, people had to work for 12 hours a day and contract labour, too, had been introduced.

The activists, who wanted to attend the AGM and present their case to the shareholders, were prevented from doing so by security personnel and the police.

Later in the evening, a company spokesman said, "No shareholder was denied entry into the meeting and the contrary claim being made by the representatives of the Bombay Electrical Workers' Union is incorrect. In fact, the representative of the union attended the meeting. REL's present tariff is approved by the government of Maharashtra under the Electricity Supply Act of 1948. As per the Electricity Act, 2003, the tariff has to be approved by the regulatory commission. Reliance Energy's proposal is with the Maharashtra Electricity Regulatory Commission for examination and approval."

Explaining the reason for the share buyback, Anil D Ambani, chairman and managing director of Reliance Energy, said at the AGM, "The proposed buyback will lead to a reduction in the outstanding number of equity shares, and consequent increase in earnings per share (EPS), improvement in return on net worth and other financial ratios. This will send a strong signal to the capital markets on the under-valuation of the company's stock price and the confidence of the management in future growth prospects and be a deterrent to speculative activity in the company's stock."

The buyback price represents a 23 per cent premium to the low of Rs 426 per share touched on May 17 this year and a 12 per cent premium to the low of Rs 463 on May 31, the day on which the notice to consider the buyback of shares was issued to the stock exchanges.

However, the buyback price is at a sharp discount to Rs 640 per share at which the company made a preferential allotment to institutional investors and Reliance group companies.

The Reliance Energy share closed at Rs 540.05 on the Bombay Stock Exchange, down 3.67 per cent from yesterday's closing price.

Reliance Energy will buy back shares on the BSE and the National Stock Exchange (NSE) through open market purchases from time to time. The company has, however, not specified any time frame for the buyback.

The shareholding of the promoters of the company fell to 48.12 per cent in March 31, 2004, from 58.22 per cent on March 31 last year.

This was a result of the fresh equity infusion, which saw the share capital of the company swell to Rs 175.26 crore for the year ended March 31, 2004, from Rs 137.83 crore on March 31, 2003.

The shares purchased under the buyback programme will be cancelled, as required under Sebi's guidelines, leading to a reduction in the company's outstanding equity capital.

Reliance Energy's share capital stood at Rs 175.26 crore and reserves and surplus at Rs 4,935.71 crore for the year ended March 31, 2004. The net worth of the company stood at Rs 4,359 crore on March 31, 2004.