Repur­chases gain trac­tion on bourses

Share buy­backs by com­pa­nies part of ef­forts to lift sen­ti­ment, prop up prices

China Daily (Hong Kong) - - BUSINESS - By ZHOU LANXU zhoulanxv@chi­nadaily.com.cn

Share repur­chases surged in main­land stock mar­kets with a siz­able growth in the num­ber of such trans­ac­tions on an an­nual ba­sis, data from in­for­ma­tion provider Wind Info showed on Fri­day.

Ac­cord­ing to data re­leased on Fri­day, share pur­chases by com­pa­nies in the A-share mar­ket to­taled 29.51 bil­lion yuan ($4.27 bil­lion) year to date, far above last year’s to­tal of 8.3 bil­lion yuan.

A share re­pur­chase is a pro­gram by which a com­pany buys back its own shares from the mar­ket­place, usu­ally be­cause man­age­ment thinks the shares are un­der­val­ued, thereby re­duc­ing the num­ber of shares in the mar­ket. The com­pany buys shares di­rectly from the mar­ket or of­fers its share­hold­ers the op­tion of ten­der­ing their shares di­rectly to the com­pany at a fixed price.

Mar­ket sources said repur­chases have risen as com­pa­nies are keen to shore up flag­ging share prices.

“Repur­chases are to re­as­sure in­vestors that the man­age­ment re­mains con­fi­dent on over­all prospects and is will­ing to pay a higher price to own more stock,” said Zhang Xia, chief strat­egy an­a­lyst at China Mer­chants Se­cu­ri­ties Co Ltd.

Zhang said an­other ma­jor rea­son for the surge in stock repur­chases was listed com­pa­nies’ ex­pec­ta­tion of a more fa­vor­able pol­icy en­vi­ron­ment, af­ter the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion said on Sept 6 that it was con­sid­er­ing re­vi­sions to the Cor­po­rate Law to en­cour­age share repur­chases.

A key fea­ture of the new changes is the move to al­low a com­pany to hold re­pur­chased shares for a max­i­mum of three years and en­abling their use in eq­uity in­cen­tive plans, an­a­lysts said.

In a typ­i­cal eq­uity in­cen­tive plan, em­ploy­ees are awarded stock op­tions in the com­pany if they achieve a per­for­mance tar­get over a time pe­riod of two or three years, while the cur­rent law re­quires com­pa­nies to trans­fer the own­er­ship of re­pur­chased stocks within a year of the buy­back.

Speed­ing up stock repur­chases could boost the cap­i­tal mar­kets as it will help bring in more funds, Zhang said. “Its scale is set to be­come big­ger in the fu­ture as more com­pa­nies un­der­take repur­chases,” he said.

“Stock repur­chases helped pro­pel the bull mar­ket in the United States af­ter the 2008 fi­nan­cial cri­sis,” said Xun Yu­gen, an an­a­lyst from Haitong Se­cu­ri­ties Co Ltd.

Xun said the cur­rent value of stock repur­chases in the A-share mar­ket is just 0.0049 per­cent of the to­tal mar­ket cap­i­tal­iza­tion dur­ing the first eight months of this year, much lower than the 0.7402 per­cent in the US mar­kets. “There is am­ple room for fur­ther growth.”

An­a­lysts said stock repur­chases in the A-share mar­ket could be fur­ther en­cour­aged by quickly putting in place the re­vised Cor­po­rate Law along with other sup­port­ive mea­sures such as tax re­forms.

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