MUMBAI (Reuters) - Reliance Energy Ltd on Wednesday said it would buy back up to $500 million worth of shares at a premium of up to 9.6 percent to the market price, which it said would counter a perceived undervaluation.
Reliance Energy, part of the Anil Dhirubhai Ambani Group (ADAG), said after market hours it would pay up to 1,600 rupees per share in the two-tranche buy-back, which it said should reduce volatility of the share price.
"It is a good price. But it might not have a significant impact on the stock price as the current market outlook is not good," said Amitabh Chakraborty, president of equities at Religare Securities.
Ahead of the news, shares in Reliance Energy closed 3 percent lower at 1,459.45 rupees on Wednesday.
The company said in a statement it would spend 8 billion rupees ($200 million) in the first phase and 12 billion rupees in the second phase for the buy-back.
At 1,600 rupees each, that would equal 12.5 million shares in total. Reliance Energy has 236.5 million shares on issue, according to the Bombay Stock Exchange.
Reliance Energy said the offer reflected management confidence in the company, and sent a strong signal to markets on the share's perceived undervaluation.
Reliance Energy, valued at about $9 billion, was the top performer in India's main stock index in 2007, when its share price quadrupled.
But its shares have fallen 31.6 percent so far this year, more than the BSE index's 18.5 percent drop, and are down 44.5 percent from a record high of 2,631.70 rupees hit on Jan 10.
Anil Ambani, his family members and investment firms together hold 34.68 percent in Reliance Energy, according to data from the Bombay Stock Exchange.
Analysts had said the buy-back might have been aimed at restoring some shine to ADAG companies, after a dismal stock market debut of the much-hyped Reliance Power Ltd last month, as it awaits approval to list another unit.
"And any IPO performance depends on the timing and the market conditions that time," Chakraborty said.
Reliance Power tanked on debut, a huge disappointment to investors after a frenzy to be part of India's biggest initial public offering which saw the $3 billion issue fully subscribed in less than one minute.
To appease investors, Ambani announced a special bonus issue for Reliance Power shareholders other than the founders, which include Reliance Energy.
Reliance Power's shares, which had fallen by a quarter in a few days after listing, climbed back to the IPO price of 450 rupees, but the stock has again fallen and closed at 376.25.
Reliance Energy, which has transferred its future power projects to Reliance Power, trades at about 38 times its one year forecast earnings, against 20 times for NTPC Ltd, which generates a quarter of India's power.
Rival Tata Power's shares trade at a multiple of 42, and shares in Reliance Industries Ltd, India's largest listed company, trade more than 23 times their forward earnings, according to Reuters data.
By Devidutta Tripathy and Hiral Vora
Source : http://in.reuters.com/
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