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Listed firms buy back shares to raise values
With the stock market in the doldrums and share prices in a declining trend, a number of listed companies have offered to buy back shares to shore up their value and reduce the glut of shares on the market.
“The action is very important for the market at present, due to its unpredictability. The buyback will help reduce the number of redundant shares on the exchange where supply outstrips demand,” said Bien Viet Securities Co. analyst Hoang Minh Tuan.
Seafood processor Nam Viet Co. Ltd (ANV) will be the next company to join the trend, slated on February 25 to buy back a million shares, one of the largest buybacks yet by a listed firm on the domestic exchange.
“Due to the bad situation on the market, listed enterprises can see the disadvantages that have arisen from the additional issues of shares to the public,” said Tuan. “The buyback is a measure to protect their own businesses.”
He noted that buybacks do not make share prices rise immediately but are effective over a longer period. Companies that have already bought back shares include Viet Nam Container Shipping (VSC), which bought back 100,000 shares, and Material Petroleum JSC (COM), which bought back 200,000.
Le Dat Chi, an analyst with a Ha Noi-based company, warned that the buyback trend wasn’t all positive.
“Previously, only firms with good capital would buy back shares. However, as the trend has spread, several small caps have withdrawn money from funds in order to finance buybacks. It isn’t really necessary,” Chi said.
Buybacks could negatively impact the capacity of such businesses to expand and cause some to alter their development plans, all in the name of shoring up share value.
Under Ministry of Finance regulations, buybacks must be approved by company management boards. Enterprises are required to mobilise funds for the share repurchase from capital reserves or retained earnings in accordance with a published buyback plan. Firms are not allowed to carry out buybacks if they are in the process of share issuance or suffering overdue debts and other dilemmas.
VNA
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