MUMBAI, APRIL 12: Petrochem giant Reliance Industries Ltd, the largest company in the private sector, has set a maximum price of Rs 303 per share for the buyback of its shares. The buyback plan will cost Rs 1,100 crore for the company, making it the largest ever buyback offer by an Indian company. RIL managing director Anil Ambani said the proposed buyback of equity shares is mainly aimed at curbing the volatility of the share price and attracting long-term investors. ``RIL will reward shareholders by returning cash to them. With the buyback programme, volatility in the RIL stock price will be reduced, leading to lowering of RIL's weighted average cost of capital (WACC) and enhancing company's global competitiveness,'' Ambani said. However, dealers said the price was far below market expectations. Reliance shares closed at Rs 334 at the Bombay Stock Exchange on Wednesday, off a high of Rs 359.90. Most market participants had been expecting the buyback to be priced at a premium to the market price and there was some talk of a price of over Rs 400 per share. The share had gained nearly 70 per cent from a low of Rs 199 a month ago on March 13. But some sections of the market seemed to have scaled down expectations, which accounted for the share price fall on Wednesday, dealers said. The specified maximum buyback price represents a premium of 52 per cent to this recent low. Ambani further said that apart from available options for buyback of shares, the board has chosen buyback through the open market and thereby promoters will not be allowed to participate in the buyback offer. The exact date for launching of buyback programme will be decided in the annual general meeting (AGM) scheduled to be held on June 13, he said. ``Although the board has resolved that buy back to be completed within a time of one year, it would be completed in short duration once it starts,'' Ambani said. According to regulations pertaining to the buyback, the company will not come out with any public issue for the next two years after the buyback. The board has also resolved that no merger will take place of any company with Reliance group during this period, he said, adding that the company can issue bonus shares or split its shares. RIL has not issued any fresh equity since 1994. Based on current regulations, RIL will not be making any fresh equity offerings, for any purpose, for a further period of nearly three years ie till the year 2003. ``We will endeavour to protect the interest of our long-term shareholders and neutralise the impact of speculative forces, by judicious exercise of share buyback within the specified price of Rs 303 per share, thereby contributing to maximisation of overall shareholder value,'' he said. ``The announcement of the buyback proposal by RIL is in line with the commitment made by Dhirubhai H Ambani, chairman, at the company's AGM on June 24, 1999, that a suitable portion of RIL's cash flows would be utilised for implementing a share buyback programme within the overall capital allocation framework announced on that date,'' the company said. Analysts and brokers felt the buyback price of Rs 303 was below market expectations. Says Bombay Stock Exchange member Pawan Dharnidharka: "It's a very poor show. It is below expectations because the general belief was that it would be above the market price. the buyback price is 10 per cent lower than today's closing price. I see the possibility of Reliance hitting the downward eight per cent limit at the open tomorrow." Adds S Mazumdar, analyst at SSKI Securities, "It does not meet market expectations though the buy-back price is around twice the book value of the share. "The market had expected the price to be set in the range of Rs 350-400 and it was expected that five per cent of the equity shares outstanding will be purchased,'' he said. "But with the amount fixed at Rs 1,100 crore the number of shares to be bought back will be only around three per cent." Vimal Jain of Prime Broking Company India said "the buyback price, though lower than the market price, does not corelate with the fundamentals of the company. The market price will adjust and there will be some selling pressure in keeping with the sentiment. However, this effectively sets a floor for the share's market price". The corporate sector has been increasingly looking at buyback for enhancing shareholders value and reducing equity capital. The capital bought back will be extinguished. Bajaj Auto had last week announced a buyback scheme. Hindustan Lever will be taking shareholders permission to buy back shares.
