February 25, 2008 -  Reliance Power Ltd., the company that raised $3 billion in India's biggest initial public offering, closed above the IPO price for the first time since listing after saying it will issue free shares to investors to compensate for a slump in the stock price.

The Mumbai-based company will issue three shares for every five held, Chairman Anil Ambani said yesterday. The free shares won't be given to Ambani and the founder group, including Reliance Energy Ltd., which hold a combined 90 percent stake.

Reliance Power added 33.55 rupees, or 8.1 percent, to 450.4 rupees in Mumbai trading, gaining the most since listing two weeks ago. Reliance Energy, which owns 45 percent in Reliance Power, gained 4.3 percent to 1,622.7 rupees. The benchmark Sensitive Index rose 1.7 percent.

Anil Ambani, ranked the third-richest Indian by Forbes, said he was concerned by the notional losses to investors. Ambani is planning an initial share sale in Reliance Infratel Ltd., which owns transmission towers for the group's wireless communications business. Reliance Entertainment Ltd., the group's entertainment unit, may also sell shares, the Hindustan Times reported Feb. 8.

``Reliance Power needed to reassure investors, considering the extremely aggressive issue price and Anil Ambani's plans for IPOs in other units of the group.'' said Girish Solanki, an analyst at Angel Broking Ltd. in Mumbai, who has a ``neutral'' rating on the stock. ``The announcement seems to have encouraged fresh buying in the stock and the ratio for free shares is certainly on the positive side.''

The bonus issue will reduce the cost of acquiring Reliance Power shares to 269 rupees for individual investors, 40 percent lower than the IPO price of 430 rupees. For large shareholders, which paid 450 rupees a share, the rate will fall to 281 rupees a share, Ambani said.  More