3:5 bonus from Reliance Power; effective price will be Rs 269(The Hindu Business Line 25th Feb 2008)
The bonus issue will effectively reduce the Reliance Power’s share price by nearly 40 per cent to Rs 269 for retail investors (who paid Rs 430 a share) and by 37 per cent to Rs 281 for institutional investors.
Reliance Power will offer three bonus shares to its investors for every five held in an effort to compensate for the fall of its share price after its high decibel, record-breaking initial public offering last month.
The bonus shares will not be offered to the promoters – Mr Anil Ambani, Chairman of the company, and Reliance Energy (REL) – who hold 45 per cent stake each in Reliance Power.
Mr Ambani is reducing his holding in the company to preserve REL’s shareholding at 45 per cent, to make good the notional loss that REL would suffer on account of the bonus issue.
“I am contributing my personal shareholding of 2.6 per cent in Reliance Power to Reliance Energy,” he said, at a news conference here on Sunday after the boards of the companies approved the free issue of shares. This contribution and the bonus offer would see Mr Ambani’s stake in Reliance Power diluted by around 5 percentage points to 40 per cent, with him relinquishing around Rs 5,000 crore “in the interest of 6 million shareholders”. The public shareholding will be 15 per cent, up from 10 per cent currently.
“I am personally concerned by the notional losses to millions of investors after change in the global and domestic market sentiment after the IPO,” he said.
The bonus issue will effectively reduce the Reliance Power’s share price by nearly 40 per cent to Rs 269 for retail investors (who paid Rs 430 a share) and by 37 per cent to Rs 281 for institutional investors.
The IPO had attracted Rs 7,50,000 crore worth of bids, raising Rs 11,500 crore for the company. A large number of investors had borrowed funds for the IPO hoping to make a profit from the listing premium. When it listed on February 11 below issue price (and continued to remain below it ever since), investor angst at the company predictably ran high. More
Reliance Power could gain 39% (Live mint.com 25th Feb 2008)Assuming market perception of Reliance Power Ltd’s firm value hasn’t changed from the pre-bonus announcement levels of Rs86,897 crore, the company’s shares could jump as much as 39% on Monday from last week’s close of Rs417.
What the 3:5 selective bonus issue essentially means is that non-promoter or minority shareholding would increase from 10.09% to 15.22%. Their stake is now worth Rs13,226 crore and since the shares trading in the market currently are cum-bonus, each share would be worth Rs580 (minority shares stand at 228 million). As a result, retail investors who have held on to their share will gain about 35%, while other investors will gain 29%.
High net-worth investors who borrowed funds to buy shares in the initial public offering would manage to break even since their cost of acquisition was about Rs560 per share. But most of them tend to book losses on listing.
While arbitrageurs will rush in to bridge the gap between Friday’s close and the sudden change in the cum-bonus share value, they would also be mindful of the short-term capital gains tax of 10%, due to which Reliance Power shares may trade slightly lower. Once the bonus issue becomes effective, 136.8 million new shares will be issued to minority shareholders, which means the ex-bonus share price should be around Rs362.
As pointed out right at the outset, these calculations depend on the assumption that Reliance Power deserves a value of Rs86,897 crore, the level it traded at before the bonus issue was mooted. This may not necessarily be the case, especially after reports late last week that the government of Haryana has imposed damages on Reliance Energy Ltd for its failure to meet a deadline for a 600MW thermal power plant. Reliance Power, which is involved in larger projects, gets a large part of its value because of assumptions of timely execution.
Leave alone penalties from authorities, if projects are not completed on time, estimates of cash flow will go awry and firm value will deteriorate. Those waiting to jump in and gain from the lucrative bonus issue should be mindful of this risk.
Reliance Energy shareholders, too, have some reason for cheer. It was first assumed that its stake would reduce owing to the bonus issue to only minority shareholders, but it now turns out that its stake will be maintained at 44.96%. In that case, the 9% erosion in its value last week seems overdone, and its shares should also rebound, unless reports about the penalty in Haryana continue to weigh down valuations. More
The bonus issue will effectively reduce the Reliance Power’s share price by nearly 40 per cent to Rs 269 for retail investors (who paid Rs 430 a share) and by 37 per cent to Rs 281 for institutional investors.
Reliance Power will offer three bonus shares to its investors for every five held in an effort to compensate for the fall of its share price after its high decibel, record-breaking initial public offering last month.
The bonus shares will not be offered to the promoters – Mr Anil Ambani, Chairman of the company, and Reliance Energy (REL) – who hold 45 per cent stake each in Reliance Power.
Mr Ambani is reducing his holding in the company to preserve REL’s shareholding at 45 per cent, to make good the notional loss that REL would suffer on account of the bonus issue.
“I am contributing my personal shareholding of 2.6 per cent in Reliance Power to Reliance Energy,” he said, at a news conference here on Sunday after the boards of the companies approved the free issue of shares. This contribution and the bonus offer would see Mr Ambani’s stake in Reliance Power diluted by around 5 percentage points to 40 per cent, with him relinquishing around Rs 5,000 crore “in the interest of 6 million shareholders”. The public shareholding will be 15 per cent, up from 10 per cent currently.
“I am personally concerned by the notional losses to millions of investors after change in the global and domestic market sentiment after the IPO,” he said.
The bonus issue will effectively reduce the Reliance Power’s share price by nearly 40 per cent to Rs 269 for retail investors (who paid Rs 430 a share) and by 37 per cent to Rs 281 for institutional investors.
The IPO had attracted Rs 7,50,000 crore worth of bids, raising Rs 11,500 crore for the company. A large number of investors had borrowed funds for the IPO hoping to make a profit from the listing premium. When it listed on February 11 below issue price (and continued to remain below it ever since), investor angst at the company predictably ran high. More
Reliance Power could gain 39% (Live mint.com 25th Feb 2008)Assuming market perception of Reliance Power Ltd’s firm value hasn’t changed from the pre-bonus announcement levels of Rs86,897 crore, the company’s shares could jump as much as 39% on Monday from last week’s close of Rs417.
What the 3:5 selective bonus issue essentially means is that non-promoter or minority shareholding would increase from 10.09% to 15.22%. Their stake is now worth Rs13,226 crore and since the shares trading in the market currently are cum-bonus, each share would be worth Rs580 (minority shares stand at 228 million). As a result, retail investors who have held on to their share will gain about 35%, while other investors will gain 29%.
High net-worth investors who borrowed funds to buy shares in the initial public offering would manage to break even since their cost of acquisition was about Rs560 per share. But most of them tend to book losses on listing.
While arbitrageurs will rush in to bridge the gap between Friday’s close and the sudden change in the cum-bonus share value, they would also be mindful of the short-term capital gains tax of 10%, due to which Reliance Power shares may trade slightly lower. Once the bonus issue becomes effective, 136.8 million new shares will be issued to minority shareholders, which means the ex-bonus share price should be around Rs362.
As pointed out right at the outset, these calculations depend on the assumption that Reliance Power deserves a value of Rs86,897 crore, the level it traded at before the bonus issue was mooted. This may not necessarily be the case, especially after reports late last week that the government of Haryana has imposed damages on Reliance Energy Ltd for its failure to meet a deadline for a 600MW thermal power plant. Reliance Power, which is involved in larger projects, gets a large part of its value because of assumptions of timely execution.
Leave alone penalties from authorities, if projects are not completed on time, estimates of cash flow will go awry and firm value will deteriorate. Those waiting to jump in and gain from the lucrative bonus issue should be mindful of this risk.
Reliance Energy shareholders, too, have some reason for cheer. It was first assumed that its stake would reduce owing to the bonus issue to only minority shareholders, but it now turns out that its stake will be maintained at 44.96%. In that case, the 9% erosion in its value last week seems overdone, and its shares should also rebound, unless reports about the penalty in Haryana continue to weigh down valuations. More
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