BT: Share prices not getting boost from buybacks (14 Jun 2006)

Business Times - 14 Jun 2006

Share prices not getting boost from buybacks

By SIOW LI SEN

(SINGAPORE) Singapore stocks seem not to respond positively to share buybacks, going by the decline in the prices of companies which have bought back their own shares, including Datacraft, Singapore Press Holdings (SPH), OCBC Bank and United Overseas Bank (UOB).

Despite spending hundreds of millions of dollars on their own shares, the share price of some of these companies has fallen faster than the benchmark Straits Times Index which at yesterday's close of 2,293.35 is down 2.3 per cent this year.

UOB, which began its second buyback programme last month, has had a gentler slide in its share price and is in positive territory for the year despite the mauling of the wider stock market, but this could be due to expectations of what the bank might do with the proceeds of its proposed divestments.

Share buybacks have become increasingly popular here, as in the US and Europe, as one way to boost companies' financial ratios and also as part of performance shares to reward employees.

The theory is that the fewer shares there are, the more each one must be worth.

Datacraft began its first share buyback in March following its announcement that it would set aside US$15 million for that purpose.

Yesterday, despite the company buying back 400,000 shares at between 88 US cents and 90 US cents, Datacraft stock closed one US cent lower at 90.5 US cents. It is now down 11.4 per cent so far this year.

To date, Datacraft has bought back 9.39 million shares or 2.01 per cent of its issued share capital. The company has a shareholders' mandate to buy back as much as 10 per cent of the issued share capital.

At last month's second quarter earnings results, the company said that it had used US$4.3 million for share buybacks.

Chief executive Bill Padfield also said that Datacraft has a cash reserve of US$137.2 million and that it is on track to pay a dividend at the end of the financial year this September. It will also be looking for more share buybacks.

SPH on May 22 bought back 1.79 million shares, paying between $4.06 and $4.10 per share. It paid a total of $7.3 million for the 1.79 million shares, amounting to 1.14 per cent of issued share capital.

According to filings with the Singapore Exchange, this was the only instance of a share buyback by SPH this year. SPH shares yesterday closed unchanged at $4, and are now down 7 per cent this year.

OCBC, probably the most active share buyback stock here, is on its third $500 million programme. Yesterday, it bought back 299,000 shares for a total $1.9 million, accounting for about 8 per cent of its trading volume.

The stock ended 10 cents lower yesterday at $6.30, having fallen some 6 per cent since Jan 1.

OCBC said that it intends to hold its re-purchased shares as treasury shares to fund its employee share incentive schemes, so as to take advantage of the tax deduction allowed.

Under its second programme, OCBC's share buyback has, on average, on the days the buyback was executed, accounted for about 11 per cent of the day's turnover.

UOB, typically more aggressive than other companies in its share buyback exercises, yesterday bought back 700,000 shares, making up a hefty 25 per cent of the day's volume of 2.75 million shares.

On June 1, UOB's share buyback of 1.38 million shares made up 33 per cent of the day's total trade of 4.23 million shares.

UOB, which began its second $600 million share buyback programme on May 25, ended 20 cents down yesterday to $14.80.

But it is still 1.37 per cent up for the year-to-date though it is not clear whether its more gentle share price slide is due to aggressive share buybacks or divestment expectations.

Last month's divestment by UOB and three affiliated companies of a 55 per cent stake in Overseas Union Enterprise has left market watchers wondering what the companies will do with the $1 billion in cash they received from the sale.

In addition, investors' eyes are now on UOB's last remaining property awaiting divestment, Hotel Negara. Under a ruling by the Monetary Authority of Singapore, local banks have until July 17 to reduce their shareholdings in non-core businesses to 10 per cent or less.

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