Reliance Buyback Announcement

As of now Reliance has cash and cash equivalents of 614.9 billion rupees as of the end of September.The company said its board would meet on Friday to consider a buyback. Controlling shareholders in Reliance own 44.71 percent of the stock, according to the Bombay Stock Exchange. This was not completely unexpected, as there was a feeling that if the stock was impacted to this extent, the company would move to buy up shares

Its last share buyback was in beginning of 2005 or to be precise in December 2004 and that time they offered a premium of 10.87% over the share price just before the buyback announcement. The size of the buyback program was kept at Rs 2,999 crore, which was about 10 per cent of the share capital plus free reserves as of 31st March 2004. However just remember that post announcement company bought shares only for nine days and buyback was to the tune of just 5% of the total buyback size. Thus there is no guarantee that company will undertake the full buyback.

Why Buybacks Bring Positive News for Stocks & its Implications?

• Buy backs are considered positive because it shows that the management has belief in the company’s performance. Buy backs help to increase the value of shares as they reduce supply in the market.
• When company announce a buyback, company is setting up a floor price, which acts as a support price for the stock and the message to the market is: 'don't short the stock. I'll buy it if it hits the floor price.
• It also shows that as of now company do not have any big acquisition proposal in mind for now and this is the only way to deploy part of surplus cash.

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