Reliance Power investors show faith in Ambani

Mysterious text messages have begun circulating in Mumbai praising Anil Ambani, the Indian businessman.

The messages, saying “Thank God for Anil Ambani” for “standing by us in times of trouble”, were from anonymous correspondents.

EDITOR’S CHOICE
Lex: Reliance IPO bonus - Feb-25Reliance Power down 17% on trading debut - Feb-11Indians hold their breath for Reliance debut - Feb-10India’s market for new offerings falters - Feb-08Reliance subsidiary announces IPO - Feb-04Reliance subsidiary announces IPO despite tough conditions - Feb-05They appeared to be responding to a move by the billionaire to issue free bonus shares to compensate investors for a sharp fall in the share price of his company, Reliance Power, after its stock market trading debut.

The group yesterday announced the details of the bonus issue, saying it would issue investors other than the controlling shareholders with three new shares for every five shares they bought in the initial public offering.

The highly unusual measure, which in effect lowers the IPO price by 37.5 per cent below the original price of Rs450, comes after a plunge in Reliance Power’s stock of 17 per cent on its debut two weeks ago.

It has since recovered to close about 7 per cent down on Friday, but the poor performance is in sharp contrast to the hype that surrounded the launch of the IPO.

While investors have welcomed the bonus share issue, it has alarmed many analysts.

They say it increases moral hazard by insulating investors from the true risks involved in buying stocks, particularly start-ups such as Reliance Power, which plans to roll out a national network of power plants but does not yet have any operating assets.

Underlying the move, however, is a deeper phenomenon common in Asian markets: the close relationship between the region’s biggest tycoons and their retail investor base and the need to maintain that good faith at all costs.

In India, no group commands more investor loyalty than the Ambani family.

Anil’s father, Dhirubhai Ambani, is credited with founding the country’s retail equities culture three decades ago in the listing of his group, Reliance Industries.

Since then, the rich returns from investing in Reliance stock have enabled Indians to stage lavish weddings for their daughters and send their children abroad for their education.

“We have faith in the company,” said Ram Swaroo, one of a crowd of retail investors gathered on the sunny street outside the Bombay Stock Exchange.

Mr Swaroo said his initial investment of Rs5,000 in Reliance 30 years ago had grown eightyfold to Rs400,000.

The closest example elsewhere in Asia to the Ambani family’s unwritten contract with its investors is Li Ka-shing, Hong Kong’s richest tycoon. He has also mostly avoided burning his retail investor base on IPOs.

David Webb, editor of Webb-site.com, a corporate governance watchdog, said the nearest equivalent to Reliance’s bonus issue occurred in China.

Investors hurt by a 2001 bubble in state-owned shares were issued bonus stock from the government’s holdings to compensate them.

But Indian analysts argue that, rather than relying on corporate benevolence to bail out retail investors, the government should tighten regulations to either prevent hyper-speculative stocks with no assets or record from listing, or ensure that they are fairly priced.

Reliance Power, for instance, listed with a market capitalisation three times that of established rival Tata Power.

The irony, said Raamdeo Agrawal, joint managing director of Motilal Oswal Securities, which is based in Mumbai, is that companies that are already listed are subject to rigorous analysis while start-ups can make whatever claims they wish.

“You don’t have sales, you don’t have earnings, you are selling only hopes and dreams and these can be as big as you like,” he said.

By Joe Leahy
http://www.ft.com/

3:5 bonus from Reliance Power; effective price will be Rs 269

Mumbai, Feb. 24 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.

The market reaction to this bonus announcement appeared mixed. One long time broker said it would make little difference since after any such issue of shares, the stock price typically goes down and investors may still find they have not gained much. “However, they may be more favourably disposed towards the group, which has lined up more IPOs,” said another broker.

After shareholder approval, the record date for the bonus shares would be communicated through the exchanges, Mr Anil Ambani said.

Allotment, refund issues plague Reliance Power investors

MUMBAI: Even as the board of Reliance Power meets on Sunday to consider a bonus share issue, there are cases of investors not having got the shares allotted to them or the refund money even 10 days after the stock listed on the exchanges on February 11.

One investor wrote in to say he was as yet unsure if he has been allotted the shares. Neither has he received the refund money.

Karvy Computershare, registrar to the mega issue, had a different reason every time the investor called in to know the status. Initially he was told he was allotted the shares and it would take a few days to get transferred to his account. Failing which, he was told his application was “suspect and put on hold.” He received a further shock when a call center executive told him his cheque had bounced.

Once the basis of allotment is decided, which was February 1 in the case of R Power, the shares in an IPO need to be credited to the applicants within two working days.

Another applicant was told that his refund money was sent as a cheque via registered post on Feb 9. However, the local post-office personnel said they had received no such letter.

On being contacted, a Karvy official said that around 2 per cent of the total applications or 1,00,000 applications were on hold for various reasons.

According to SEBI officials, in the past one week they had received over 1,800 complaints and had flagged off the company on them. In reply, company officials said all the grievances would be resolved in next 10-15 days. The company is expected to come out with a report on the status of allotment and refund next week.

Source : http://economictimes.indiatimes.com

Why did Reliance Power lost 17% on its debut at the exchanges?

MUMBAI: It’s well known that Anil Ambani’s Reliance Power lost 17% to close on Rs 372.50 against the issue price of Rs 450 on its debut on the stock exchanges. But what’s not known is that a handful of Mauritius-based foreign institutional investors (FIIs) and a domestic bank offloaded their entire or almost entire shareholding in the company within minutes of the opening bell.

The stock opened with a handsome premium at Rs 530 on NSE and Rs 547.80 on BSE at 9.55 am. But within four minutes, it went down by 26% to Rs 389.80 on NSE. The fall was even sharper on BSE by 28% to Rs 395. In other words, it fell almost 7% a minute, resulting in erosion of shareholders’ wealth of Rs 30,000 crore.

Reliance Power is well aware of the price hammering on the first day. Incidentally, all companies of Mr Ambani’s group were down by 10-20% on that day. In a letter written on February 15, Reliance Power has requested the market regulator to investigate the matter in line with the Sebi ( Prohibition of Fraudulent and Unfair Trade Practices) Regulations.

The letter, which was addressed to the Sebi chairman, has demanded the regulator investigate all relevant information and data from the stock exchanges, including the quantities of shares sold, the identity of the brokers and their clients, the pattern and timing of the sales and the funding of margins, stock lending under the FII route and P-notes.
The very nature of the stock trading demands that the price should move in both directions. So what’s so special about it? The answer, perhaps, lies in the way the FIIs exited from the counter within minutes by selling their shares at a price lower than their purchase cost.

A closer look at the trading data indicates that as much as 23.77 million shares, 10.4% of the total 228 million shares sold through the Reliance Power IPO, changed hands on the twin bourses of Mumbai within the first four minutes of trade. More interestingly, the entire sale took place at the price ranging between Rs 443 and 392, lower than the allotment price of Rs 450. “They did not mind to exit at a loss, but did not have the patience to continue for a few more days, forget months. Why did they apply for the issue?” asked a city-based broker who did not wish to be named.

Three FIIs sold out their entire allotment of 2.6 million shares each during the period. Five other FIIs sold almost their entire holdings - they sold 2.47 million, 2.46 million, 2.45 million, 1.99 million and 1.68 million, respectively while a domestic bank sold 1.69 million.

A person close to the development said some sell orders were made at progressively declining prices - completely irrational to a seller- pointing towards a concerted attempt at hammering at the counter. In some cases, the visible quantity of sale orders was much larger than the traded quantity, leading to the suspicion that large quantities were displayed to create panic, and they were withdrawn. “All this points out towards a possibility of a pre-meditated manipulation of the Reliance Power order book to create a negative sentiment,” he added.

The Reliance Power board will meet on Sunday to consider issue of bonus shares to the shareholders, excluding the promoters. The company said promoters would accept the dilution in their shareholding in the broader interest of investors.

The IPO had closed on January 18 by creating a history of sort when it got investment commitments of Rs 750,000 crore from nearly 500 institutional investors and five million retail investors. Subsequent to the closing of the IPO, the global and Indian equity markets suffered an extra-ordinary meltdown, with all benchmark indices down 15-20 % and leading Indian stocks lower by 20-40%.

Some people also blame the management for ‘over-pricing’ the issue. Indirectly, the management agrees to it by announcing that it will consider issue of free shares to the non-promoter shareholders. The stock on Wednesday closed at Rs 408.20 on BSE, 1.23% lower than Tuesday’s close.

ADAG offers free bonus shares to Reliance Power investors

New Delhi (PTI): Taking the investing community by surprise, the Anil Ambani group on Sunday announced to consider free bonus shares to all non-promoter shareholders in Reliance Power, while alleging that corporate rivals were pulling down share prices of all group companies.

Reliance Power also demanded a probe by market regulator SEBI into "a vicious and orchestrated campaign of market manipulation and market abuse unleashed by unscrupulous rival corporate interests to hammer down all Reliance ADA stocks".

The company said its board would consider the free bonus shares at a meeting next Sunday, February 24, to benefit over four million of its investors and the cost would be accepted by promoter group by way of diluting its shareholders.

The company said that promoters would accept the dilution in their shareholding in the broader interest of investors.

Besides a proposal for issuing free bonus shares to all categories of shareholders, excluding promoters, the board would also consider other measures that could reduce the cost of Reliance Power Ltd shares below the IPO price of Rs 430 per share for retail investors, and Rs 450 per share for institutional and other categories of investors.

The IPO had closed on January 18, 2008 with an overwhelming response of about Rs 7,50,000 crore in commitments from nearly 500 institutional investors and five million retail investors.

However, subsequent to the closing of the IPO, the global and Indian equity markets have suffered an extra-ordinary meltdown, with all benchmark indices down 15-20 per cent and leading Indian stocks lower by 20-40 per cent, the company said in a statement.

"In line with this global trend, the Reliance Power stock price has closed below the IPO price, since listing on February 11, 2008. From the time of opening of the Reliance Power IPO on January 15, 2008, the Sensex is down 13 per cent, while the Reliance Power stock is down 11 per cent from the IPO price for retail investors, and 15 per cent for other categories of investors," it noted.

The company said that the decline in the Reliance Power stock price has been compounded by an attempt to undermine the group's name and reputation, while causing losses to millions of genuine investors.

"In keeping with the Reliance ADA Group's fundamental and over-riding philosophy of creating value for genuine long term investors, the Board of Directors of Reliance Power will be meeting as above, to consider appropriate one-time measures which will result in reduction of the cost of Reliance Power shares below the IPO price," the company said.

Such measures would include a proposal for issuing free bonus shares, thereby protecting investors even from notional short-term losses on their shareholdings.

Reliance Power said it has the world's largest shareholder family of nearly 500 overseas and domestic institutional investors, and over 4 million retail investors and is implementing power projects with aggregate capacity of over 28,000 MW, by far the largest development pipeline in the country.

Source : http://www.hindu.com/

Reliance Power plans bonus share issue

MUMBAI (Reuters) - Reliance Power Ltd plans to issue bonus shares to all equity holders other than the founders, hoping to cheer retail investors after the firm's shares tumbled following a record $3 billion IPO.

Its board is scheduled to meet on Feb. 24 to consider issuing bonus shares and/or other measures which it said would effectively reduce the cost of the company's shares.

"This will include a proposal for issuing free bonus shares to all categories of shareholders excluding the promoter group, thereby protecting investors from even short-term losses on their shareholdings," it said.

Reliance Power's shares, which listed on the stock exchange on Feb. 11, had fallen by a quarter but recovered to close 15 percent below the IPO price of 450 rupees a share on Friday, helped by a three-day market rally which saw the benchmark index climb 9 percent.

The slump in Reliance Power, a unit of the Anil Dhirubhai Ambani group, infuriated investors, many of whom complained they were lured to invest in the company because of promises from the firm, which has no operating power plants and is unlikely to report strong profits for five years.

Reliance's supporters say the Ambani family has a strong track record of executing projects on schedule and delivering strong returns to investors, attracting millions of investors to bid for its shares offered in India's biggest IPO ever.

The company said its shares were hit by weak market sentiment and blamed rivals, who were not identified, for hammering shares of companies in the Anil Dhirubhai Ambani Group.

It also reminded investors that there were risks attached to equity investments.

"Equity shares, by their very nature, are risk-bearing instruments and there is no obligation on behalf of any issuer to insure investors against possible losses," it said.

However, the company's board would consider a bonus issue and other steps as the group had a "fundamental and over-riding philosophy of creating value for genuine long term investors".

The fall in Reliance Power's shares followed market turbulence that knocked out a few IPOs, including the $1.6 billion issue from Emaar MGF Land, the Indian unit of Dubai's Emaar Properties.

Reliance Communications, another Anil Ambani firm, is planning an IPO for its telecom towers unit, Reliance Infratel Ltd, which media reports and bankers say aims to raise $1-1.5 billion.

Founded by Dhirubhai Ambani, the Reliance companies were divided between the late Ambani's sons in 2005. Anil has interests in telecoms, financials, media and power while elder brother Mukesh controls India's top listed firm, oil and petrochemicals giant Reliance Industries Ltd.

By Prashant Mehra

Source : http://in.reuters.com/

R-Power gains over 5 per cent; outperforms Sensex

Reliance Power, the Anil Ambani group's latest entry to bourses, today clocked a 5.3 per cent rise in its share price, snapping a three-day losing streak and outperforming the market benchmark Sensex in the process.

In a bullish market where the Sensex rose by 817 points or 4.82 per cent, shares of Reliance Power on Thursday closed for the first time in a positive territory. After hitting an intra-day peak of Rs 374.80, the stock settled 5.31 per cent up at Rs 370.05 at the BSE.

The stock had debuted on the bourses on Monday when it settled nearly 17 per cent below the issue price of Rs 450. The stock fell further by about five per cent on Tuesday and by about one per cent again on Thursday.

However, despite a recovery seen on the counter, today's closing price was still about Rs 80 below the price at which investors were alloted the shares in the country's biggest- ever IPO last month.

The company had scaled a lifetime peak of Rs 599.90 on February 11, while it hit a low of Rs 332.50 on Wednesday at the BSE.

Buying was seen across the Reliance pack of shares in today's trade. Among Anil Ambani group stocks, Reliance Communications rose 9.26 per cent, Reliance Energy gained 9.63 per cent, and Reliance Capital appreciated by 9.41 per cent, Reliance Natural Resources Ltd soared 12.91 per cent, while Adlabs Films saw its share price adding 8.58 per cent.

In elder brother Mukesh Ambani-led group, Reliance Industries rose 5.35 per cent, Reliance Petroleum gained 13.56 per cent, whereas Reliance Industrial Infrastructure Ltd slipped 1.30 per cent.

Source : http://www.hindustantimes.com/