Reliance Energy to buy back shares

Moreover, in view of the buyback plan, REL has also postponed its move to issue up to 10 million preference share capital and securities in the international market in the form of global depository receipts (GDRs) or American depository receipts (ADRs).

Earlier, at the 75th annual general meeting, REL Chairman Anil Ambani listed out various benefits of the proposed buyback to the company. He told the shareholders that the buyback would lead to reduction in outstanding number of equity shares and consequent increase in earnings per share (EPS), improvement in return on net worth and other financial ratios, cut in volatility in the company’s stock price, leading to fall in the cost of equity, and optimisation of the weighted average cost of capital (WACC).

Ambani said the buyback would also send a strong signal to the capital markets on the undervaluation of the company’s stock price, and the confidence of the management in future growth prospects and reduction in floating stock and enhanced long term price performance.

He added that the buyback would be a deterrent to speculative activity in the company’s stock and would have positive impact on REL’s stock price, contributing to higher valuation and maximisation of overall shareholder value.

Meanwhile, shareholders also approved the REL’s proposal to issue preference shares for an aggregate value not exceeding Rs 1,500 crore in one or more tranches in order to strengthen the company’s financial position and generate resources for its capex of Rs 20,000 crore during 2004-09.

REL had recently raised over Rs 2,300 crore through a preferential offer of equity shares and equity related securities. Subsequently, the holding of the promoter group (Reliance Industries, Reliance Power Ventures Limited, Reliance Industrial Investment and Holdings, Reliance Capital Limited, Reliance Capital Trustee Co and various other bodies corporates) in REL has dipped to 48.12 as on March 31, 2004 from previous year’s 58.22 per cent. Moreover, stake non-promoters rose to 36.42 per cent from 28.13 per cent.

REL distributes power to large parts of Mumbai, primarily to retail customers, under a sub-licence. Currently, it owns power generation capacity of 950 MW and actually distributes 5,000 MW power in Mumbai and Delhi.

The company has decided to set up a mega 3,500 MW gas-based power plant at Dadri in Uttar Pradesh. On completion, this will be the largest single-location gas-based power plant in India. REL expects to commission the first phase of this project by the end of 2006.