I hope it is a good move on the part of the company and a laudable effort to earn the investors’ faith about the goodwill of the Reliance group. Anil Ambani has attempted to create an image of being investor-friendly after his scrip failed miserably at the bourses.

Reliance Power has considered to issue Bonus shares for all shareholders excluding the promoters of the company. The promoters now hold about 90 percent stake in the company.  The decision will result in dilution of upto 3 percent stake now held by the promoters of the company.

 
This Bonus share issue will be discussed in detail on February 24 in the meeting of the company.  People who are deeply involved in analyzing the development of the share think that Reliance Power might go for one bonus share against 3 or 4 existing shares. Reliance Power had set the cost of Rs. 450 for institutional investors while 430 for the individual investors in the retail market. So depending on the proportion (i.e. 1:3 or 1:4) it offers, the effective price of each share for the retail investor will drop to Rs 322 or Rs 344 respectively as compared to the issue price of Rs. 430 per share and for institutional investors the effective price will come to  Rs 337 to Rs 360 as against issue price of Rs. 450 per share.

 
What was the Loss ?

 Lot of investors who had applied in anticipation of good show by the share on its opening were the disappointed lot. The dismal opening of Reliance Power at the stock exchanges had turned many of the investors irritated with the group. There had been good number of new investors who had entered the market just because of Reliance name.  The loss of goodwill was the result in many of the retail investors.  In fact, the BSE Sensex had also seen a steep fall on the day of its listing.  According to analysts, the Reliance Power price of 450 was much higher to its real cost. IF compared with NTPC, its price should had been between Rs. 300- 350.

 Reliance Power’s decision of Bonus Shares may compensate the investors’ loss to some extent. It will salvage the reputation of the company in the minds of investors.

 
Concept of Bonus share:

 A Bonus share is the share which is offered to existing shareholders by a company in relative proportion to their respective share. Generally, a company offers Bonus shares from the Profits gained by the company.

Reliance Power’s issuance of Bonus shares is entirely unique because in this case Reliance Power has yet to start its production of Power in the year 2012. Also, this is the first time an Indian company has proposed bonus shares barely a week after listing on the stock exchanges.

The immediate impact of the Bonus shares by Reliance Power has shown rise, nearly 12 percent on the National Stock Exchange and touched a high of Rs 430, price at which shares were allotted to retail investors. On the Bombay Stock Exchange, the scrip jumped 11.67 per cent over its previous close.

       <u> Reliance Power on Monday 15 feb 2008 </u>

                             BSE                      NSE
 Open Price        Rs. 365.05           Rs.359.10
 High Price         Rs.389.20            Rs.388.95
 Low Price          Rs.358.00            Rs.356.00
 Close Price        Rs.384.70            Rs.384.50
 Volume             11768611             7584303