Reliance Power Bonus Issue

debdeeps · #21 18th February 2008, 12:06 AM

Quote:

Originally Posted by greatindianwiseman

What's the bonus ratio?

Vivek

It is 2:1. Thanks,

neomustdie · #22 18th February 2008, 12:09 AM

as said at other threads in the forum and my speculation..... reliance power shares will zoom on Monday past 400 mark... till the bonus is issued, the hype will continue.... plus trader's interest will be restored in it.....

can expect levels of 550 in short run..... to clarify the point, please read below the following article from rediff....

in short.... bonus issue will dilute the equity but not to the ratio of the bonus shares.....

now say u have 10 share for 450 rpower... and bonus is issue 2:1... then u will hold 30 shares (10+20)..... each share ideally should not be 150 rupees but in realty it will be always greater than 150 due to more liquidity...

Code:

source http://in.rediff.com/getahead/2005/may/19shares.htm

What are bonus shares?

They are additional shares issues given without any cost to existing shareholders.

These shares are issued in a certain proportion to the existing holding. So, a 2 for 1 bonus would mean you get two additional shares -- free of cost -- for the one share you hold in the company.

If you hold 100 shares of a company and a 2:1 bonus offer is declared, you get 200 shares free. That means your total holding of shares in that company will now be 300 instead of 100 at no cost to you.

Who foots the bill?

You are right. There is no free lunch.

Bonus shares are issued by cashing in on the free reserves of the company. I mentioned earlier that the assets of a company also consists of cash reserves.

A company builds up its reserves by retaining part of its profit over the years (the part that is not paid out as dividend). After a while, these free reserves increase, and the company wanting to issue bonus shares converts part of the reserves into capital.

So you do not pay; and the company's profits are not impacted.

Will the price change after a bonus issue?

A bonus issue adds to the total number of shares in the market.

Say a company had 10 million shares. Now, with a bonus issue of 2:1, there will be 20 million shares issues. So now, there will be 30 million shares.

This is referred to as a dilution in equity.

Now the earnings of the company will have to be divided by that many more shares.

Earnings Per Share = Net Profit/ Number of Shares

Since the profits remain the same but the number of shares has increased, the EPS will decline.

Theoretically, the stock price should also decrease proportionately to the number of new shares. But, in reality, it may not happen.

That's because:

i. The stock is now more liquid. Now that there are so many more shares, it is easier to buy and sell.

ii. A bonus issue is a signal that the company is in a position to service its larger equity. What it means is that the management would not have given these shares if it was not confident of being able to increase its profits and distribute dividends on all these shares in the future.

A bonus issue is taken as a sign of the good health of the company.

When a bonus issue is announced, the company also announces a record date for the issue. The record date is the date on which the bonus takes effect, and shareholders on that date are entitled to the bonus.

After the announcement of the bonus but before the record date, the shares are referred to as cum-bonus. After the record date, when the bonus has been given effect, the shares become ex-bonus.

paddy1005 · #23 18th February 2008, 01:07 AM

Quote:

Originally Posted by debdeeps

It is 2:1. Thanks,

Hi Deb,

Can you share the source of this information ?

Paddy

rkkarnani · #24 18th February 2008, 07:37 AM

Quote:

Originally Posted by debdeeps

It is 2:1. Thanks,

The figure 2:1 is a speculation or confirmed News???

ratan jain · #25 18th February 2008, 08:59 AM

why not 10 :1 ?

or 25:1 ?

or 100:1 ????????

or 1000:1 ???????

VasanSuccess · #26 18th February 2008, 11:41 AM

I guess, Anil Ambani try to increase the share value, Sell his own holdings in market get some profit out of it, give it to some retail investor(may be 5:1 also possible) and again sell more of his holding.

NET-NET, Sure, there will be some gains but Not huge, Those who had rightly bought it at 350 are those who can gain a lot by selling it on 24-feb at rate of 450.

MiLiNDOnline · #27 18th February 2008, 12:36 PM

Quote:

Originally Posted by ratan jain

why not 10 :1 ?

or 25:1 ?

or 100:1 ????????

or 1000:1 ???????

Hi,

I think all this issue has not been confirmed as of yet!

This is at this point of time is just a news (rumour) and there has no official info / or supporting info available for this as of yet.

The big question is - if this bonus info is true and approved by the mgt. on around 24th of this month, then what kind of effect it will have on the pricing of RPower!

There are many diversified opinions on this which makes quite confusion amongst!

I would also like to add that I think - for LT hold its a good pick....

Thanks.

bhargavhalani · #28 18th February 2008, 01:59 PM

What's your opinion? one should hold or sell this?

coolcritic007 · #29 18th February 2008, 02:14 PM

RPower will remain in the range of 410-440 this week and further, it depends on the meeting on 24th. After bonus, the price may fairly be at 300-340 levels. The ratio of the bonus has not been decided yet.

VasanSuccess · #30 18th February 2008, 03:23 PM

Quote:

Originally Posted by bhargavhalani

What's your opinion? one should hold or sell this?

Sell, when price between 430-450. Bonus will just take care to make adjusted buy price around 375.

Because, If they give more bonus. Most of retail investor tend to sell for such huge profit(more than 20%) and Price will fall further amount to loss of share capital/premium. Reliance wont do that.

Best is to sell it at 430 level. Remember, If bonus is published, there may be some rally which may take this share to little more higher level, If record date is decided as later date.