Buyback to benefit company promoters

‘‘It’s good for the shareholders, but it’s the best deal for the Ambanis. The company’s funds will be used for the buyback,’’ said Pawan Dharnidharka, a BSE dealer. When other investors surrender their shares, the promoters’ stake will automatically go up. The Reliance Industries (RIL) scrip, which opened firm at Rs 527, tanked 3.55 per cent to Rs 505 as the sentiment weakened after Vice-Chairman Anil Ambani publicly opposed the buyback.

RIL has set aside a sum of maximum Rs 2,999 crore for the buyback, that is not exceeding 10 per cent of the total paid-up equity capital and free reserves of the company as on March 31, 2004. At the maximum buy-back price of Rs 570, RIL can buy back about 5.26 crore shares. This is about 3.76 per cent of RIL’s equity of 139.63 crore shares (paid-up equity capital is Rs 1,396.38 crore).

“It is an expensive victory for the company, but with fundamentals shaken due to the differences between the Ambani brothers, the sentiment has turned bearish for the company stock,” said Rajesh Jain, CEO, of Pranav Securities.

“The disappointment was also due to the company giving a ceiling price, rather than the fixing a floor price for the buyback. Buyback of only 4 per cent of the total equity and that too from the open-market route saw players dragging the stock lower,” added Jain. In fact, the BSE Sensex movement mirrored the price fluctuation in RIL stock which enjoys a 10.51 per cent weightage in the benchmark index. After opening in negative territory at 6,484.84, down 13.22 points from its previous close, the Sensex hit its all-time high of 6,566.64 after RIL announced its buy-back in the mid-morning trades. Later, Sensex slipped from its higher levels, after RIL stock fell on disappointment over the buyback being through the open market route.