Board meeting on March 5 to consider the proposal.
The Anil Dhirubhai Ambani group-promoted Reliance Energy Ltd (REL) has proposed a buyback of its shares.
The management has not stated any particular objective for buyback, but a press release said it has convened a board meeting on March 5, to consider the proposal.
The move comes just two days after Reliance Power, another group company in which REL owns 45 per cent, offered bonus shares to its shareholders in the ratio of 3:5.
According to industry watchers, one reason for the buyback could be to keep the share price from falling. The REL stock has lost about 36 per cent from its peak of Rs 2,631.70 in January and it currently trades at Rs 1,697.25.
Typically, managements initiate a buyback if they believe their companies' shares are undervalued and that the market price does not reflect the fundamentals. By supporting the stock price at a certain level, the company can absorb any selling by investors, they point out.
Buyback options, however, require spare cash. The company's reserves and surplus were approximately Rs 9,000 crore at the end of March 2007.
Going by the market regulator's rule that companies can invest up to 25 per cent of their reserves on share buybacks, the amount spent on acquiring the shares could be in the region of Rs 2,250 crore.
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