1:1 Reliance Bonus Stuns Market Into Frenzy

Reliance Industries, the countrys largest private sector company, yesterday sent the markets into a frenzy of excitement with a larger than anticipated one-for-one bonus to shareholders that ended a long 14-year wait since they were last rewarded in a similar fashion.

After due deliberation and taking the views of all shareholders into consideration, the board of directors has decided to recommend a bonus in the ratio of..., said 65-year old Dhirubhai Ambani, and trailed off. The audience in the packed Birla Matushree Auditorium in south Mumbai completed the sentence with a roar :1:1.

Cheers rent the air and shouts of `Dhirubhai zindabad reverberated throughout the auditorium.

 

The petrochemicals and textile giant said it did not foresee any further equity dilution during the next two or three years.

The bonus offer reflects our confidence in the future, Dhirubhal Ambani said.

We do not foresee any further equity dilution over the next two to three years, excluding outstanding conversions (of debentures), Ambani added.

The market exulted at the announcement and the Reliance stock created history with 419 lakh shares traded on the National Stock Exchange for a record Rs 1580.97 crore, one of the highest traded volumes in the stock on a single day.

Driven by RIL, the NSE notched up a record turnover of Rs 3,080.61 crore.

On the Bombay stock exchange (BSE), nearly 131 lakh Reliance shares worth Rs 493.98 crore changed hands.

The scrip was extremely volatile in intra-day trading, opening at Rs 368 on the BSE and moved up to Rs 376 on expectations of a favourable bonus. Later, however, the scrip was pounded to an intra-day low of Rs 358 on rumours that the bonus would be announced only after the shareholders meeting.

Immediately after the bonus was declared, the stock rocketed to a new 52-week high of Rs 388. On the NSE, the scrip peaked at a 52-week high of Rs 390 after the bonus was declared.

The scrip flagged towards the end of trading session on profit taking, closing at Rs 377.25 on the BSE and Rs 379.70 on the NSE, a gain of Rs 11.75 and Rs 11.15 respectively.

In London, after the news of the bonus filtered through, the GDR price shot up to $ 23.20, climbing 77 cents after the London market opened.

Reliance Industries has had a roller-coaster ride on the international market over the past year dipping to a low of $ 10 in December 1996. But the bonus announcement has changed all that.

This represents quite a change for many international fund managers whove been selling Reliance for most of this year. Says a broker: We think the management is making a conscious effort to change its image.

However, marketmen in Mumbai said key foreign instituional investors (FIIs) were offloading large chunks of Reliance shares towards the fag end of the day. Domestic institutions like the Unit Trust of India exacerbated the selling pressure.

being quoted at Rs 375 on the kerb. Market sources said there has been a lot of activity on the kerb over the past two days in feverish speculation over the bonus. The cumulative net delivery position in the RIL stock at the NSE stood at 80.53 lakh shares yesterday, exchange sources said.

Ambani also said Reliance planned to follow international accounting practices in addition to the domestic accounting standards.

We will...be reconciling our accounts in line with US GAAP (general accepted accounting principles) standards from the current year, he said, noting that the company had a global investor base.

High drama preceded the bonus announcement. Dhirubhai Ambani kept everyone on tenterhooks till the very last minute. Much against expectations that the bonus would be announced before the AGM began, the board meeting was scheduled after the AGM at 1.20 pm.

As Ambani flanked by his two sons Mukesh and Anil took their seats on the dais, cheers broke out and some enthusiastic shareholders shouted `bonus 1:1.

However, Ambani held back the bonus announcement for some time. We want to hear your views, he announced grandly. You can come and talk about the bonus ratio. Whether it should be 1:1, 2:1 or 3:5. We will then decide. The meeting will be held here in the hall and, after 15 minutes, we will come out and announce it, said Ambani prompting applause from the gathering which had just groaned collectively on hearing about the postponement.

Dressed in a dark suit and wearing glasses, Ambani looked fit, but coughing bouts interrupted his speech. Elder son Mukesh had to prompt him frequently.

By this time, the scrip had slid to Rs 358 after opening at Rs 368, but that was only a temporary blip. Between the time the board met for the bonus at 1.20 pm and the time it was announced at 1.40 pm, the scrip had zoomed to Rs 385 from Rs 360.

The bonus will double Reliances paid-up equity from Rs 460 crore to Rs 920 crore and the fully diluted equity to Rs 1,074 crore from Rs 537 crore. Reliance will have to call an extraordinary general meeting to approve the bonus and also raise its authorised capital from Rs 1,000 crore.