Reliance Share Buyback Details

by Manshu on January 23, 2012

in Investments

Reliance Industries Limited (RIL) announced a share buyback plan along with their quarterly results on Friday, and the main thing to remember about that buyback plan is that Reliance Industries is going to execute it through an open offer and buy the shares from the open market.

This means that the company will go and buy the shares from the stock exchange, and there is no way for a shareholder to offer their shares to Reliance Industries and ask them to buy it for a certain price.

The price of Rs. 870 that’s being discussed is the upper limit at which the company will buy shares, and that in no way indicates that the stock price will reach Rs. 870 in the near future or that you can get Rs. 870 for a share any other way.

Reliance Industries Share Buyback Details

Reliance Industries Share Buyback Details

Over a period of time Reliance will buy its own shares from the market as long as the price is below Rs. 870. If the price rises beyond 870 then they won’t buy any more shares. They are not going to keep buying as long as the price reaches 870 – that’s not their intention at all.

The third aspect of this buyback announcement is the Rs. 10,440 crore upper limit, and this is the maximum the company will spend on the buyback. They are not obligated to spend all of Rs. 10,440 crores, and they will probably not use all of that either. That’s just my guess based on what they did last time and the fact that they have debt worth Rs. 74,503 crores and cash worth Rs. 74,539 crores and they did spend Rs. 1,899 crores on interest payments in the first 9 months of this fiscal so the cash can be used to reduce this debt as well.

I can’t think of anything that’s been announced in this buyback that makes such a material difference so as to start an investment position in Reliance. If you want to speculate for some short term gains then I don’t have any input on that but Business Line has a great article on the currently open buyback offers and they found that out of the 15 offers that are currently open, 14 are much below the maximum price offered by the company, so that gives you an indication of how other offers have recently fared.

{ 5 comments… read them below or add one }

Shashank January 23, 2012 at 6:16 AM

Hi Manshu,

Share Buyback announcement by Reliance may sound like that they want to gear up their equity base instead they had other good options like :
1. retiring few debt off the book
2. looking for an profitable investment avenue OR
3. simply they could have distributed a fat dividend.

But the announcement made just before the Q3 results clearly shows they wanted to boost investor`s psychology by playing these AGE OLD TRICKS !!!

Reply

Manshu January 23, 2012 at 11:06 PM

They have a lot of debt so they could have looked at retiring that and I won’t be surprised if they do that in the next few quarters.

Reply

bemoneyaware January 23, 2012 at 10:45 AM

I have doubt regarding the buy back procedure from the stock market. I mean if I want to participate in the buy back how to go about it.

I went through your article on Introduction to share buy back in India Quoting from it:
How do you participate in the buy back offer?

There are two types of buy back programs – one is done through purchase from the stock market, and the second one is done through a tender form.

When a company carries out buy back from the stock exchange, they just declare that they are going to buy shares from the stock market, and there is nothing that you have to do here (except perhaps hope for a gain in share price).

What should I do in such a case?

Reply

Manshu January 23, 2012 at 11:05 PM

That is a bit confusing I guess, but in this case – there’s nothing that you can or are needed to do. The company will purchase its shares from the stock exchange and the individual investors can’t sell it to them directly. There is nothing that they can do. Does this make sense?

Reply

prabhat bhartia February 2, 2012 at 1:01 AM

if company bye back share i give it to the company & my holding is more than 10 years so do i have to pay tax on profit. pl let me know

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