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Regulators eye botched buybacks
The State Securities Commission has ordered the bourses in Ha Noi and HCM City to more closely supervise the process of listed companies buying back shares.
If the stock exchanges discover any unlawful activity, they must make a timely report to the commission, according to Document No 75/UBCK-QLPH.
The document also requires companies that have already registered to buy back stocks, but have not yet completed the process, to publish a specific explanation.
Last year, around 61 listed enterprises registered to buy back shares, but most only bought back a tiny proportion of the shares they had registered to repurchase. Petrolimex International Trading Joint Stock Co (PIT), for instance, repurchased 45,000 shares between July 15 and October 15 last year, after it had registered to buy up to 500,000.
Most buybacks had stemmed from plummeting share values last year, with companies deeming that cheap prices made it an appropriate point of time for them to repurchase shares. The move was also designed to help prevent further declines in the company’s share prices, stabilising the market.
But the limited scale of the buybacks failed to prevent the downtrend of the market.
PIT said that its stock continued to plunge in line with the common trend of the market, so it restricted the repurchase to ensure the interests of its shareholders.
A series of firms reported a similar experience, including Ba Ria – Vung Tau Housing Development Joint Stock Co (HDC), Ben Tre Seafood Import and Export Joint Stock Co, Sieu Thanh Joint Stock Co (ST8) and Vien Lien Joint Stock Co (UNI).
Dinh The Hien, director of the Department of Banking and Finance of HCM City’s Gia Dinh Information and Technology University, recommended that firms only repurchase shares when their financial position is solid.
"If financial resources are weak and the buyback only targeted to ignite demand and push up stock prices, the move is more harmful," Hien said. "Because, in reality, the enterprises lack capital for production, loan interest rates remain high, the money for share repurchases remains ‘buried’."
Experts recommended that firms make any buyback decision carefully because, even when an enterprises has idle capital, they need to provide for bad debt and other risks in the face of the current economic slowdown.
A director of a securities company, who asked to remain anonymous, said the enterprise’s management board should assess the real value of stocks and compared to trading prices on the stock market. Only if the trading price is lower than real prices should the board consider a buyback.
VietNamNet, VNS
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