Reliance Energy Ltd (REL) has announced that its board of directors has given sanction to the buyback of its shares, valued at Rs 2,000 crore, in two different phases.

During the initial phase, Rs 8 billion will be spent on the share buyback that will be effective within the next 10 days.

Another Rs 12 billion would be deployed in the second segment, which would commence after 45 days, as the company has to receive sanction from its shareholders.

The company plans to purchase its own share at a maximum price of Rs 1,600 per share at a premium of around 10% to its closing price on Wednesday and a premium of more than 30% to the share’s low of Rs 1,225 in 2008.

REL shares, on Wednesday, marked theirs closure at Rs 1,459.45, down 3.01% on the Bombay Stock Exchange (BSE).

The company stated that the buyback would slash the outstanding number of shares and raise its earnings per share (EPS), lessen floating stock, helping to improve valuations and increase long-term price performance.

The buyback will also diminish instability in REL’s stock price, causing reduction in equity cost and weighted average cost of capital, REL added.

REL was the top gainer among Sensex stocks during the last year 2007, but has decreased over 30% in the recent year (2008) as against a fall of 18.5% in the Sensex.

The company told that the scheme will remain open up to one year or till the total amount get utilized. The second phase will start only after the completion of the first phase.

The amount to be used represents 25% of REL’s net worth (paid up capital and its free reserves), and the shares will be purchased on both the BSE and the NSE via open market purchase.

This is the second buy-back offer by REL. It announced a buyback in June 2004 for Rs 350 crore up to a maximum price of Rs 525 shares. The offer was extended till June 2005 but the company’s balance sheet for 2004-05 said no shares were bought back.