Reliance Power issue was oversubscribed two times in just 60 seconds. The company is yet to commence production, while IPO of Emmar, a company with great track record of development in India and abroad and already in business had to earlier to reduce premium and then to withdraw the issue.

 Reliance Power, shortly after listing, lost ground and ended up below issue price. About ten days, and it is still to recover the loss. In the meanwhile, the board of Reliance Power will convene on February 24 to consider issuing bonus shares to shareholders, excluding promoters. The decision will reduce cost of acquisition to all shareholders. The company's promoters will accept a dilution of their holdings. 

Initial listing of Reliance company shares below issue price is not a new thing. In fact, in hindsight, this had to happen. Reliance communications, RNRL, RPL- all issues at some time touched issue price or even substantial lower levels. But all these shares soon recovered, and today, have benefited their shareholders.

 Reason- Ambanis know their power and the confidence public reposes in them. They know, their issue would never bomb despite the fact, it will always be over priced. Public too knows, reliance would never ditch them and would ensure applications are made anyways for the public issue. Now, the move of reliance power to issue bonus shares  

No law forces Ambanis to such a move except for corporate prudence. In 1994 boom, thousands of companies collected money and all have forgotten shareholders. Even shareholders have forgotten those companies. Apart from corporate prudence and your mission to keep a shareholder happy, there is no compulsion for such a move.

 

I was shocked reading some of the experts on investments labeling this move of bonus issue as an admission by the management that the issue was overpriced and the pricing was not based on the fundamental valuation of the company. Such experts even called it motivated move and a desperate move.

 

Each company is allowed free pricing and it is not the first or the last case investor burning their fingers in IPO losses. But it is definitely a first instance of any public company issuing bonus shares to shareholders just to compensate for the loss, diluting promoters own holding. It should be saluted.

 

It remains to be seen what would be the bonus ration, but by going with the conservative estimates in the market, it is expected to be one share for every three shares held. Yes, the investors who sold off immediately after listing at loss would have to suffer.

 

The move is likely to push up the share value further both for understandable reasons as well as affirmation of the investors’ faith in the company.

 Go ahead with the tradition of keeping investors satisfied as set by your father. Investors would be waiting for your forthcoming issues of Reliance Infratel, Flag Tele, Reliance Entertainment, Reliance Energy EPC division and many more to come.