Reliance Power

By SP Tulsian

Reliance Power had proposed bonus issue of 3 shares of Rs.10 each for every 5 shares held, to the non-promoter shareholders of the company, for which book closure date has been fixed form 3^rd June to 5^th June 08. Share would go ex-bonus from Friday, 30^th May 08. This means, from Friday, share would get traded at the ex-bonus levels which means today is the last day of trading on cum-bonus basis.

The present paid-up equity of the company is at Rs.2,260 crores which would rise to Rs.2,396.80 crores. To recall, the company made a net public issue of 22.80 crore shares of Rs.10 each on 15^th January 2008. In post bonus equity, promoters would be holding shares of Rs.2,032 crores while public holding would be Rs.364.80 crores.

We have been receiving lot of queries on effective ex-bonus price, strategy on holding pre-bonus and ex-bonus shares as also the likely movement of share price on ex-bonus basis. So we thought of covering them all at one place for the convenience of our readers :-

Q – What will be the ex-bonus price?

A – Share is presently ruling at Rs.420 on cum bonus basis, multiply this by 5 and divide it by 8, which works out to Rs. 262 and that would be ex-bonus price likely on Friday.

Q. – Who will be entitled to the bonus shares ?

A. – All non-promoter shareholders holding shares of the company at the end of business hours on 2^nd June 08 would be entitled to bonus shares. It does not make any difference whether any shareholder has acquired those shares by way of public issue or from the secondary market.

Q. – The present market capitalization of the company is close to Rs.95,000 crores having arrived by multiplying current market price of Rs.420 with present issued shares which is at 226 crore. Post bonus number of issued shares would rise to 239.68 crore shares. If we divide present market capitalization of Rs.95,000 crores by post bonus issued shares, it gives an effective value per share, on post-bonus, to Rs.396. Is it right in presuming that ex-bonus share price would be Rs.396. ?

A. – No. Presently only shares held by non-promoter category are traded on the stock exchange as all the shares held by promoter have lock in of either five years or one year. Hence, effect of bonus issue to non-promoter category would get applied to all the shares presently traded on the stock exchange and hence ex-bonus price would be arrived at as stated in first question above. Due to this, market capitalization of the company would fall to about Rs.63,000 crore.

Q. – Would it be better to sell shares on cum bonus or ex-bonus basis ?

A. – It does not make any difference as the effective realization would be same in either case. However, if you sell shares on ex-bonus basis, you would only be able to sell existing shares held by you, on ex-bonus, as bonus shares are not likely to get credited to your demat account on or before 30^th June. In that case, you would be able to sell your bonus shares in the month of July.

Q. – Can I sell my total holding (including bonus) on 3^rd June ?

A. – Don’t do this mistake as bonus shares would come to your account only in the month of July. If you sell your total holding including bonus on 3^rd June, you would not be able to deliver the entire quantity and bonus quantity would get auctioned. Also, if you issue one instruction slip for transfer of the total quantity of shares sold to your broker’s account, the instruction slip would not get executed and entire quantity would get auctioned. For example if you are holding 500 shares pre-bonus and presuming that 300 bonus shares have come on 3^rd June and you sell 800 shares, than it is certain that 300 shares would get auctioned against you, as bonus would not get credited to your account on or before 30^th June.

Also, if you have issued one instruction slip for 800 shares, even that would not get executed and hence entire quantity would get auctioned against you.

Q. – Would share price rise after it goes ex-bonus ?

A. – It is like taking call on any other stock which is purely on market dynamics. Considering the present state of all other power stocks, it is likely that even share price of Reliance Power would hover between Rs.260 to Rs.280 in the next 15 – 30 days. Maybe, some informed play or momentum can take the share price to cross Rs.280 which may not be sustainable.

Q. – Will original allottee in IPO be entitled for bonus ?

A. – If investors had sold shares on or before 29^th May, he/she would not be entitled for bonus.

Q. – How does the bonus issue benefit an investor having acquired shares in an IPO ?

A. – Nothing, except for bringing down the effective cost to Rs.269 or to Rs.281, for retail category and non-retail category, investors. This can be presumed more as compensatory bonus issue.

Q. – Would ex-bonus share price get arrived based on present market capitalization of the company?

A. – No. Present market capitalization has no relevance at all and it would be worked out purely on the basis of any other bonus issue adjustments taking place.

Q. – Has there been any precedence of such issue of bonus shares only to Non-Promoter Category ?

A. – No.

We hope that all the queries of our readers pertaining to Reliance Power has been replied to. It would not make any difference whether you sell shares cum bonus or on ex-bonus basis. However, if you are in the need of money, it is advised to sell them on cum bonus basis. On ex-bonus basis, share is likely to get quoted at around Rs.265.