Reliance Bonus Impact

Reliance Industries Ltd sprang a pleasant surprise on Wednesday, announcing a 1:1 bonus share issue, the first time in 12 years.

According to a proposal approved by the RIL board on Wednesday, all shareholders will get one free share for every share held by them.

Around 35 lakh shareholders will benefit from, what is being termed a ‘Diwali bonus’. The last bonus issue (also 1:1) by RIL was in 1997.

The RIL board also proposed an interim dividend of Rs 13 per share for 2008-09. The dividend will entail an outgo of Rs 2,219 crore, including Rs 322 crore in taxes, said a senior company official. The board also approved the audited results of RIL for the year ended March 31, 2009.

In a notice to the stock exchanges, RIL said: “The board of directors , at its meeting held on October 7, inter alia, has recommended, subject to the approval of the shareholders, issue of bonus shares in the ratio of one equity share of Rs 10 each fully paid up for every one equity share of Rs 10 each of the company. “

Mr Alok Agarwal, RIL’s Chief Financial Officer, said that shareholders of Reliance Petroleum Ltd, which was recently amalgamated with RIL, will also get the same bonus and interim dividend. Since the demerger of the group, RIL has created value of Rs 2,47,000 crore in market capitalisation. Shareholders have earned a 40-per cent compounded return, he said.

“RIL is now ready to invest for the future. It has a strong balance-sheet, large cash reserves and substantial financial flexibility, owing to its Treasury stock holdings, which have a current value of nearly Rs 40,000 crore,” Mr Agarwal said. The company recently sold 1.5 crore treasury shares worth Rs 3,188 crore.

“It was indeed a big surprise as usually this kind of announcement is made at annual general meetings,” said Mr Prayesh Jain, an analyst at India Infoline. There was no run-up in the stock price in the past few days, which indicates that the announcement was unexpected, he said.

RIL is currently locked in a battle with Reliance Natural Resource Ltd over the pricing of gas from the KG basin.

Analysts expect the RIL bonus issue to put pressure on the Anil Ambani group to make similar announcement.
Market impact

Mr Manish Sonthalia, Fund Manager, Motilal Oswal Financial Securities, said RIL bonus announcement will have a short-term positive impact in the markets. It shows that the company is confident of being able to service its expanded equity capital and give returns to its investors in the long term, said Mr Sonthalia.

Some market participants expect RIL to go in for a buy-back as the ex-bonus share price could turn attractive.

RIL shares closed at Rs 2,099 on BSE on Wednesday, down 1.57 per cent, over the previous close. The bonus announcement came after the market hours.

Mr Agarwal said that during the past four years, a period of significantly higher capital costs, shortage of capital globally and constrained resources for large-scale projects, RIL commissioned the Jamnagar refinery and the Krishna-Godavari Basin D6 upstream gas project. He said the company currently owns nearly 25 per cent of the world’s complex refining capacity. RIL is the only large refining company in the world today that operates its facilities in excess of 100 per cent of rated capacity, he said.

Mr Agarwal said that the KG D6 production ramp-up is on track, with 100 per cent uptime achieved since the facility went on stream on April 1, 2009.

via BL