Share buybacks of listed firms ‘a delicate balancing act’

By Keren Concepcion G. Valmonte, Reporter

SHARE buyback programs enable listed companies to maximize key opportunities to secure better business prospects and stabilize shareholders’ investments amid clouded market conditions, analysts said.

“Increased buyback activities by some listed companies are somewhat opportunistic amid relatively lower price of shares amid better future prospects for business growth and stock price appreciation, as well as the still relatively lower cost of funding to do such buybacks, all in preparation for better business or economic times ahead,” Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in a Viber message last week.

DoubleDragon Properties Corp. has announced plans to buy back up to P500 million of its common shares using internal funds.

In a disclosure on July 30, the real estate developer said it aimed “to enhance shareholder value and to manifest confidence in the company’s value and prospects through the repurchase of the common shares of the company and through the return of a portion of the company’s capital to its shareholders.”

On Oct. 8, Alliance Global Group, Inc. (AGI) announced a P4-billion share buyback program. The company bought back nearly P112.54-million worth of shares as of Friday, Oct. 15.

In April, AGI’s Emperador, Inc. also approved a P1-billion share buyback program “to enhance shareholder value” using “sufficient retained earnings” to support the buyback program.

As of June 22, Emperador has repurchased P999.39-million shares.

RCBC’s Mr. Ricafort said these share buyback programs are “a delicate balancing act.” Funds should be “allocated judiciously” to maximize emerging opportunities that improve a company’s valuation.

“Using the listed company’s funds for more productive activities that help enhance the value of the enterprise would be the more preferred option, while excess funds would be allocated to finance share buybacks,” Mr. Ricafort said.

Share buybacks may also lead to a reduction in public free float or the shares that are held by the public.

“[This is] one of the criteria or requirements for listed companies, especially those that are included in the key stock market indexes locally and internationally, as a metric also for the stock’s liquidity in the market,” Mr. Ricafort said.

First Metro Investment Corp. Head of Research Cristina S. Ulang, meanwhile, said these share buyback programs are “more a play on share supply relative to demand.”

“Share buybacks don’t look as real as the fundamental drivers of shareholder value creation such as business [capital expenditures] or investments and their inherent yield on capital,” she said in a separate Viber message last week.

However, these programs “can [also] be a means for companies to grow because repurchased shares can be part of future asset exchanges and employee incentives.”

“Share buybacks have been historically key catalysts of share price appreciation in the emerging market equity space, benefiting shareholders’ return,” she added.