Indian Stock Market

DLF has announced a buy back of Rs 1,100 crore equity at a maximum price of Rs 600 per share. The volume of the buyback would go up to 2.2 crore shares; that is 1.1-1.29% equity. The promoters’ stake will go up from 88.1% to 89.3%, if buyback is completed.

What does this mean for shareholders?

This offer will be valid for one year; it will increase the promoters’ stake by 1% to around 89%. DLF says the share price does not reflect the true value of the company. And that they wil buy back at the prevailing market price from shareholders. The management assured that it will not buy back at Rs 600 unless share price reaches that on the stock markets.

Ramesh Sanka of DLF said today the land bank will take care of our requirements for the next ten years, hence this is one of the best ways to utilize our surplus cash flow and to also give positive signals that the money that the company is earning is being put to the use of the shareholders.

Excerpts from the press conference:

On total expenditure:

One sense that DLF is having is most of the land bank has already paid that. In the past, the surplus cash was spent towards the acquisition of the land. So today the land bank will take care of our requirements for the next ten years hence this is one of the best ways to utilize our surplus cash flow and to also give positive signals that the money that the company is earning is being put to the use of the shareholders.

On receivables:

We have enough cash that is coming up and we have enough generations to take care of any opportunity that comes. Not only existing buildings and existing constructions or existing hotels, but even any new opportunities if there are.

On fund raising activities:

The actual sales itself is growing at a phenomenal rate as the quarter results are coming up, which will explain how the funds are getting generated.

On financials:

The financials will be out in the next couple of weeks so you can wait and watch for that.

On slowdown:

At least, DLF has not faced any slowdown.

On liquidity crunch:

If any company has a liquidity crunch they will never go for a share buyback. The clear signal that it is giving is that we are having enough funds, enough resources to go ahead.

Anil Ambani’s Reliance Energy (REL) said on Wednesday that it would buy back shares worth up to Rs 2,000 crore at a price of up to Rs 1,600 a share, a 9.6% premium over Wednesday’s closing price.

With the fund allocated for buyback, the company could purchase around 1.25 crore shares from the open market, which would raise promoter’s stake by 1.5% to 37% on a reduced equity base, said a senior company executive.

The REL board, which met on Wednesday, has decided to complete the buyback in two phases. The company will release Rs 800 crore in the first tranche, while the remaining Rs 1,200 crore will be allotted in the second phase, subject to shareholders’ approval. The buyback is to “reduce short-term volatility in the company’s share price and deter speculative activity” in the stock, the company said in a statement.

The promoters’ equity in the power distribution company stands at 35.5% after they scaled up their holding by 2.5% in past one year through creeping acquisitions. The REL stock quadrupled in 2007, making it one of the top performers in the stock market. The share has fallen over 30% so far this year, more than the BSE index’s 18.5% drop. Ahead of the buyback announcement, the REL share closed 3% lower at Rs 1,459.45 on the BSE on Wednesday.

“REL, which has a cash reserve of almost Rs 11,000 crore and a net worth of Rs 10,000 crore, is undervalued in the market. The buyback will reduce the equity base, resulting in an increase in the earnings per share (EPS) since the shares bought back will be extinguished. This, in turn, will increase the promoters’ stake on a reduced equity base. Also, it is expected to set a floor price and restrict the downside,” said an analyst with a local brokerage. REL’s fully diluted equity capital is Rs 279.53 crore, while its market capitalisation is over Rs 42,000 crore.

The move, which aims to bolster investor confidence, came soon after REL arm Reliance Power announced three bonus shares for every five shares held by its investors. Reliance Power slumped 17% on its debut in February after raising Rs 12,000 crore through the country’s largest IPO.

Post-announcement of the bonus issue, the Reliance Power stock crossed the issue price of Rs 450. But it came down by 4.1% on Wednesday to close at Rs 376.25. The bonus shares will bring down the cost of acquiring Reliance Power shares to Rs 269 for retail investors and Rs 281 to others. The Reliance Power shares were sold at Rs 450 through the IPO, which offered Rs 20 discount to retail investors.

This is the second time REL is going for a buyback after the Reliance group had acquired the erstwhile BSES. Earlier, in June 2004, before the demerger of the Reliance group, it had bought back shares worth Rs 350 crore. It had paid a maximum price of Rs 525 per share, which represented a 12% premium to the low of Rs 463 on May 31, 2004, the day on which the notice to consider buyback of shares was issued to the stock exchanges

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.

The Rs 6,575-crore power utility was sitting on cash and cash equivalents of approximately Rs 7,500 crore, according to the balance sheet for March 2007.

REL had consolidated cash and bank balances of Rs 2,226.33 crore and quoted investments of Rs 4,446.33 crore, the market value of which is mentioned as Rs 4,550 crore. It also has some additional investments.

However, the cash and cash equivalents could be higher at about Rs 10,000 crore, as at the end of December 2007, assuming some infusion of funds by the promoters and a rise in the value of investments.

REL’s paid-up equity as of March 2007 is Rs 228.57 crore and has increased to Rs 236.53 crore as on February 4, 2008, with the conversion of some foreign currency convertible bonds (FCCBs) into shares.

REL’s subsidiary, Reliance Power, raised about Rs 11,000 crore through an initial public offer last month at a price of Rs 450 per share and Rs 430 per share for retail shareholders.

The promoter and promoter group hold 34.68 per cent in REL, with the majority 34.04 per cent with Anil Ambani’s AAA Project ventures Pvt Ltd.

While Anil Ambani’s personal holding is just 0.06 per cent (139,437 shares), his son Jai Anmol A Ambani and wife Tina Ambani hold 0.05 per cent each, according to the shareholding information given to the stock exchanges as in December 2007. Institutional investors hold 44.74 per cent in REL.

While announcing the bonus shares for Reliance Power, Anil Ambani had said he would transfer 2.6 per cent of his personal holdings in Reliance Power to REL, worth Rs 4,200 crore.

This move was to allay concerns that the shareholders of REL would suffer because the bonus issue was restricted only to non-promoters of Reliance Power.

Recently, fast moving consumer goods major Hindustan Unilever completed its buyback of shares, spending Rs 626.28 crore picking up and30 million shares at an average price of Rs 207.13 per share

Goldiam International Ltd has informed that a meeting of the Board of Directors of the Company will be held on February 25, 2008, to consider buy-back of equity shares of the Company and addition of development of infrastructure, residential, commercial, industrial etc. properties in the Main Objects of the Memorandum of Association of the Company