Reliance Industries said its board of directors is scheduled to meet on January 20 to consider a proposal to buy back the company's equity shares.
The company informed the stock exchanges NSE and BSE of the proposal.
The scrip of Reliance Industries gained on the news and closed at Rs 776.9, up 4.94 per cent or Rs 36.55, on the BSE. This rise was recorded on a day when the benchmark indices closed flat.
No clarity on size
Though there is no clarity on the size of the buyback, there is speculation that it could constitute 10-12 per cent of the existing equity of Reliance Industries.
“The buyback will utilise the large pile of cash and cash equivalents (approximately Rs 70,000 crore) lying on Reliance's balance sheet and is expected to be value accretive to the shareholder,” said an oil and gas analyst with a leading brokerage.
Promoters hold 44.71 per cent in Reliance Industries. Experts said that the buyback would be exempt from the obligation on the promoters' part to make an open offer subject to compliance of extant SEBI regulations.
Signals
Experts tracking Reliance say that there are three aspects to the move. One, the promoters want to send the message that they are optimistic about the company's business prospects. Two, the buyback is being used as a tool to prop up the share price of the company; and, three, the buyback also utilises the idle cash on its books. “Though RIL is a long term buy-and-hold scrip, there is no doubt that its businesses in the short term are under pressure,” said a Head of Research of an Indian brokerage.
“The retail business has not taken off as desired, the financial services joint venture with DE Shaw is still in infancy. The group's telecom and media ventures are yet to start and there is no clarity on when its gas output will increase to desired levels. If the offer price is significantly higher than the market price, it could just be the impetus the scrip needs to go back above Rs 1,000 a share.”
Previous buyback
RIL had last done a buyback in December 2004 when it acquired shares worth Rs 149.62 crore (or five per cent stake).
As of today, the market capitalisation of Reliance Industries is in excess of Rs 2.54 lakh crore.
RIL is slated to announce its Q3 results on January 20, and marketmen expect there will be a pressure on the company's refining margins.