Reliance Power: Sharing the spoils of a bonus
27 February 2008
How much does each group of Reliance Power shareholders and promoters stand to gain from the bonus issue? Is Anil Ambani really taking a hit? By Vivek Sharma
An over-hyped IPO, a disastrous listing, a curious bonus issue and a 'personal sacrifice' of Rs5,000 crore by the promoter - the early days of Reliance Power have witnessed high corporate drama.
True to the Anil Ambani Group's penchant for achieving 'unprecedented' feats, the company has already notched up many achievements in its short life so far. The biggest ever IPO that generated an unprecedented investor demand of Rs7.5-lakh crore… the most valuable company in the power sector and one of the most valuable private sector entities even before it has begun generating a single rupee in operating revenues - it has been quite an amazing journey indeed!
The frequent bailouts of financial markets by the US Fed are often described as a 'Greenspan Put' and more recently a 'Bernanke Put'. RBI governors do not want to be seen as accommodative of market sentiments and we are yet to see a 'Reddy Put'. As if to compensate for such lack of excitement, we now have an 'Ambani Put' with all the associated concerns of 'moral hazard' and setting dangerous precedents. The Reliance Power bonus proposal and the decision by Anil Ambani to voluntarily transfer part of his stake in Reliance Power to Reliance Energy are unprecedented.
So, who all are gaining from the Ambani Put?
Minority shareholders escape unhurt
Non-promoter shareholding in Reliance Power before the bonus shares are issued is slightly over 10 per cent and will increase to more than 15 per cent after the bonus. The average share price of Reliance Power was around Rs350 per share during the week it got listed, and it may be taken as a fair market price if the bonus was not announced. At that price, the pre-bonus stake of minority shareholders was valued at close to Rs8,000 crore.
The share price settled at Rs450 yesterday and, considering the modest dilution from the bonus issue, the post-bonus price should be theoretically around Rs425 per share. That is assuming the markets will remain at the same level. At that price, the post-bonus stake of minority shareholders will be valued at close to Rs15,500 crore.
