Reliance Energy's board approves buy-back of equity shares

The board of Reliance Energy has approved a buy-back of its outstanding equity shares for an aggregate amount of up to approximately Rs 2,000 crore (US$ 500 million), in two phases.

An amount of Rs 800 crore (US$ 200 million) will be expended in the first phase on the share buyback, pursuant to the approval granted by the board of directors. This amount represents 10% of the paid-up equity share capital of the company, and its free reserves.

A further amount of Rs 1,200 crore (US$ 300 million) will be expended in the second phase. This amount represents an additional 15% of the paid-up equity share capital of the company, and its free reserves.

REL will buy-back shares up to a maximum price of Rs 1,600, representing a premium of over 30% to the low of Rs 1,225 recorded during the calendar year 2008, and a premium of approximately 10% to the closing share price on the date of the board meeting.

REL will buy-back shares on BSE and NSE, through a transparent mechanism of open market purchases, from time to time.

The share buy-back will be made from the company's substantial balances of cash and cash equivalents, and is expected to reduce short term volatility in the company's share price; deter speculative activity in the company's shares; send a strong signal to the capital markets on the perceived under-valuation of the company's share price and reiterate the confidence of management in future growth prospects of the company.

The shares purchased under the buy-back program will be cancelled, as required under SEBI guidelines, leading to a reduction in the company's outstanding equity capital.

The proposed buy-back is expected to lead reduction in the outstanding number of equity shares, and consequently, an increase in earnings per share (EPS); improvement in return on net worth and other financial ratios; reduction in floating stock, contributing to higher valuations, and enhancing long term price performance; reduction in volatility in the company's stock price, leading to reduction in the cost of equity, and weighted average cost of capital (WACC); no impact on leverage ratios, as the company is debt free at a net level; Positive impact on the company's stock price, contributing to maximization of overall shareholder value.

REL's fully diluted equity capital is Rs 279.53 crore, and its market capitalisation is over Rs 42,000 crore (US$ 10.5 billion).

This was approved at the board meeting held on 05 March 2008.