Sunday, May 24, 2009

Promoters and Directors seem to be confused

I am talking about Reliance Infrastructure. On the one hand, the company is announcing buy-backs followed by more buy-backs. On the other hand, the company is announcing private placement of shares followed by private placement of shares. The first buy-back is announced upto a maximum price of INR 1600 and then the second was upto a maximum price of 700. The maximum amounts were INR 800 Crore and 700 Crore respectively. The first warrants allotment were around INR 1800 for 4.3 Crore warrants, amounting to INR 7830 Crore. The latest allotment is at INR 1000 for 4.3 Crore warrants, amounting to INR 4300 Crore. What I know as an investor is that a company announces buy-backs when it has extra cash and it feels its share price is below its intrinsic value. A company announces allotment of warrants when it needs cash infusion and its share price is above its intrinsic value and equity dilution doesn't affect EPS a lot. When the promoters and directors feel that the company's share is undervalued at INR 1600 and overvalued at INR 1800 and again that the company's share is undervalued at INR 700 and overvalued at INR 1000, they simply are confused.
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