Will consider buyback: RIL; stock soars 4.9

Likely to be the largest buyback in Indias history

Reliance Industries RIL on Wednesday announced that its board will take a decision on Friday on a share buyback.

If experts are to be believed,the board may approve a buy-back of between Rs 10,000 crore to Rs 15,000 crore. If the decision goes through,then this would be the largest buyback in the history of Indias capital markets.

The announcement brought cheer among investors and the companys stock price jumped by 6.3 per cent before closing the day at Rs 776.9 with a gain of 4.9 per cent. This was in contrast to the rather flat day witnessed at the markets.

Reliance Industries Ltd has informed the BSE that a meeting of the board of directors of the company will be held on January 20,2012,inter alia,to consider and approve a proposal for buyback of the companys equity shares in accordance with all applicable provisions of law, said the statement.

Some market players,however,are taking this announcement with a degree of caution and say that the company may be trying to cover up an impending fall in share prices.

Reliance Industries is expected to announce below-expected results and may report lower refining margin and is also expected to post some forex losses. So in order to prevent future decline in share prices,the company may have announced this, said a senior official with a leading financial services firm on conditions of anonymity.

While the details of the buyback are yet to be disclosed,market experts feel that the company,which is sitting on a cash pile of Rs 85,000 crore can allocate anywhere between Rs 10,000 crore to 15,000 crore for the buyback.

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The current share capital plus free reserves of company is about Rs 1,46,000 crore,as on March 31,2011. One can assume 10 per cent of this amount as the maximum buyback size. RIL may choose the buyback size in the range of Rs 10,000 crore to Rs 14,600 crore, said Jagannadham Thunuguntla of SMC Global Securities.

I think that the allocation amount for buy-back could range between Rs 12,000 crore to Rs 15,000 crore and the price would range between Rs 850 to Rs 900 per share, said SP Tulsian,an independent market analyst.

However,all this money may not be deployed for buyback. Sebi has made it mandatory for all companies to use at least 25 per cent of the amount authorised by the board. In its buyback programme in 2004 RIL had kept the size of the buy back at Rs 2,999 crore but the total buyback done was to the tune of Rs 149.6 crore and thus had bought only 5 per cent of the announcement.