KARACHI: The buyback spree continues on the Pakistan Stock Exchange (PSX) as TPL Properties Ltd, which builds residential and commercial projects through real estate investment trusts (REITs), announced in the outgoing week that it’d purchase up to 50 million of its shares starting from August 2.
The buyback exercise, which will be carried out using the firm’s distributable profits, will continue until Jan 29, 2024. Afterwards, the property developer will cancel the shares, which constitute about 8.7 per cent of the current paid-up capital of the company.
At the going rate of Rs13.53 apiece, the exercise will cost the company roughly Rs676.5m.
The practice of listed firms buying back their shares is becoming increasingly popular in Pakistan. The total number of shares goes down once a company conducts a share buyback for cancellation. As a result, its break-up value and profit per outstanding share go up.
According to the latest data compiled by Arif Habib Ltd, five companies have completed their buybacks in recent months at a combined purchase value of Rs12.1bn.
Six companies, excluding TPL Properties, have initiated but not completed the exercise so far. Their purchase value until June 15 was Rs14.8bn.
The largest of the five completed buybacks in terms of the total purchase value was by Bank Alfalah Ltd, which purchased its shares worth more than Rs6bn. It was followed by Lucky Cement Ltd (Rs4.3bn), JDW Sugar Mills Ltd (Rs878.9m), Maple Leaf Cement Factory Ltd (Rs669.3m) and NetSol Technologies Ltd (Rs184.3m).
Recent changes in the share buyback regulations seem to have encouraged the practice, which is equally popular in developed markets. These changes were introduced via an amendment to the Companies Act 2017 on Dec 4, 2021. Now the repurchase can only be made through the stock exchange based on the prevailing share price. This is different from the previously allowed method of a tender offer, which involved a company asking stockholders to sell its shares for a specific price at a predetermined time. Critics say buybacks discourage share price discovery by reducing the number of shares available for trade in the open market. Moreover, companies burn their “distributable profits” to carry out such transactions. The same accumulated cash would otherwise be used for either dividend payments or business expansion. Therefore, the government ends up either losing the tax it would’ve collected on dividend disbursement in the first case or compromising the future economic activity in the second instance.
