Mukesh Ambani-led Reliance Industries Ltd (RIL), India' biggest company by market value, on Wednesday announced that it would consider buying back shares at a meeting on Friday. Experts say this could be the largest ever buy-back programme in the history of India’s capital markets.
RIL’s shares jumped 5% to Rs 777 on the BSE after the announcement. The share of the petroleum-to-textiles giant with diversified interests in telecoms and retail has a 9.78% weightage in the benchmark 30-share sensitive index, the Sensex.
Cash-rich companies buy back shares by dipping into their reserves and extinguish the purchased stock, thereby decreasing the number of shares that results in a higher earning per share. This is considered a way of boosting shareholder value. Reliance Industries had last announced a buy-back seven years ago in December 2004."A meeting of the board of directors of the company will be held on January 20, to consider and approve a proposal for buy-back of equity shares in accordance with all applicable provisions of law," said the company in a filing to the Bombay Stock Exchange(BSE). It did not specify the number of shares that may be repurchased or give a time-frame.
“Whatever may be the company's announcement, it is reasonable to expect that this will be largest ever buy-back programme in the history of Indian capital market,” said Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities.
The current share capital and reserves of company total to about Rs 1,46,000 crore, as per the financials at the end of the last financial year ended March. Experts expect 10% of this amount as the maximum buy-back size, or anything in the Rs 10,000 to Rs 14,600-crore range.
The maximum price in the 2004 buy-back scheme was Rs 285 per share (a pre-bonus price of R570 per share). The maximum buy-back price the company announced then was about 10.87% higher than the stock price before the buy-back announcement.