Bonus news charges up Rel Power

But experts doubt value of a post-issue free share issue

MUMBAI: Reliance Power shares got a shot in the arm on Monday following a weekend announcement that the company board will meet on February 24 to consider a bonus issue to all shareholders barring the promoters.

The scrip, which has fared poorly since it was listed on February 11, closed at Rs 413.65 on the Bombay Stock Exchange, 7.53% higher than its close on Friday, but still 3.80% below the Rs 430 at which shares were issued to retail investors. While the shares may have rebounded, a section of the market believes that one should not lay much emphasis on the bonus issue.

“It might give a psychological boost, but it does not give any immediate benefit to investors,” said Parag Parikh, chairman of Parag Parikh Financial Advisory Services Ltd. After a bonus, the share price of a company typically falls. The extent of the fall will depend on the ratio in which the bonus shares are being issued. This ratio is not known yet.

“Further, since Reliance Energy holds 45% in the company and no shares are being allotted to it (since it falls under the promoter group), the move will be detrimental to the shareholders of Reliance Energy,” said Parikh.

On the flip side, A Balasubramanian, chief investment officer of Birla Sun Life Mutual Fund, says shareholders will benefit in the longer run, when the projects of the company start coming on stream. “Without incurring extra costs, shareholders will be given more shares, from which they can benefit when the projects takes off,” he said. But for the record, the first of the 13 projects planned by Reliance Power is expected to be operational only by 2010, and the last by 2014.