Reliance On Buy Back Of Shares

India's largest private business conglomerate Reliance Industries Ltd (RIL) said its board of directors would meet on December 27, a day before its founder Dhirubhai Ambani's birth anniversary, to discuss buyback of the company's shares. Reliance shares were hit after Mukesh on Nov. 18 confirmed long-rumored differences with Anil. Indian media have run stories about the likelihood of a split in the family-run conglomerate, one of Asia's most powerful business groups.

Since then the stock has fallen more than 13 percent, wiping out 90 billion rupees, or $2 billion, in the company's market value and causing jitters among investors worried about losing more money on a premium blue-chip stock.

The company plans to buy back 52 million shares at 570 rupees (£6.80; $13) apiece, a premium of more than 10% to its current market price. The buy-back price should be payable in cash, up to an aggregate amount not exceeding Rs.29.99 billion. This amount represents the limit of 10 percent of the total paid up equity share capital and free reserves of the company as on March 31, 2004.

The statement said the Reliance board had confirmed that the company would not purchase shares under the buy-back from the promoters or from any persons in control through negotiated deals or private arrangement. Funds borrowed from banks or financial institutions will also not be used for the buy-back, it added.

The buy-back is expected to lead to an increase in earnings per share as a consequence of reduction in outstanding number of equity shares as well as to an improvement in return on net worth of the company.

RULES & REGULATIONS TO BE FOLLOWED FOR AND AFTER BUY-BACK:

The board of directors under 77A of the Companies Act, 1956,is authorized to buy back up to 10 per cent of paid-up equity capital and free reserves of the company. The company cannot issue same kind of securities for six months after the buyback, which can be from existing security holders on proportionate basis or from the open market. Debt equity ratio cannot be more than 2:1.

REASON FOR BUY-BACK:

1. Company sources said the issue of buyback has been placed before the RIL board for a decision so that speculative activity in Reliance stocks by vested interests could be stopped. The purpose of the buyback of shares is to reduce volatility in price, bring back confidence in the company, decrease overall cost of capital and increase earning per share due to reduction in number of shares, the sources added.

2. The board hopes the move will reverse a 13% fall in Reliance's shares since the feud became public last month.

3. Company’s buy-back programme would have a positive impact on share prices and maximise overall shareholder value. The decision to buy-back equity shares is a reflection of the under-valuation of the company's stock price and the confidence of the management of Reliance Industries in its future growth prospects. It would also have a positive impact on the stock price, contributing to maximisation of overall shareholder value.

4. RIL said in a statement yesterday that the decision to buy back equity shares is a reflection of the under-valuation of the company's stock price and the confidence of the management of RIL in its future growth prospects. It would also have a positive impact on the stock price, contributing to maximization of overall shareholder value; it added The company claimed that the buyback would lead to an increase in earnings per share as a consequence of reduction in outstanding number of equity shares as well as to an improvement in return on net worth of the Company.

WHY ANIL AMBANI DID NOT WANT BUY-BACK???

Anil Ambani had requested Sebi to ask Reliance Industries for disclosures on some points. The first of these is the 7.5 per cent stake in Reliance Industries the Petroleum Trust holds, which is shown as part of the promoters' holding.

The second is the 4.71 per cent stake in Reliance Industries held by four companies, Reliance Polyolefin, Reliance Aromatics and Petrochemicals, Reliance Energy and Project Development and Reliance Chemicals.

The third point is the potential conflict of interest of Nimesh Kambani, who is a trustee of the Petroleum Trust, which holds a 7.5 per cent stake in Reliance Industries, and is also one of the lead managers to the buyback programme. The trust is shown as a promoter of the company.

Lastly, Anil Ambani raised issues relating to ownership and management and the steps taken to separate the two.

RELIANCE REPLIES:

Reliance Industries said in its disclosures on Monday that it had accounted for the shares held by the Petroleum Trust and by the four companies in the "promoters/persons acting in concert" category in line with "the change in the definition of the expression 'promoter' in the Sebi (Substantial Acquisition of Shares and Takeover) regulations.

The company also disclosed that Nimesh Kambani, chairman and managing director of J M Morgan Stanley, was one of the trustees of the Petroleum Trust.

It said the sole beneficiary of the trust was Reliance Industrial Investment and Holdings Ltd, a wholly owned subsidiary of Reliance Industries

SEBI CLEARS RELIANCE BUYBACK OF SHARES

After daylong deliberations, Sebi cleared Reliance Industries Ltd (RIL) buyback of shares at 11 pm on Friday, in the face of objections raised by RIL Vice-Chairman and Managing Director Anil Ambani. According to sources, Ambani put forward a formal objection with Sebi against the buyback, arguing that it is not in the company’s interests.

A point he raised was that one of the merchant bankers to the deal — Nimesh Kambani — also happens to be the trustee of the Petroleum Trust, which holds 7.5 per cent in RIL. When the buyback was put forward to the RIL board, Anil had abstained. He had proposed the cancellation of the Petroleum Trust shares for the buyback or a lower buyback price. Though it has cleared the buyback, Sebi has asked RIL to publish all objections in the offer advertisement.