Well-known investor backs share buyback by listed firms

The announcements of share buyback by several listed companies last week, causing share prices to rise over 5 per cent, did not usually happen in the Thai stock market.

“Many investors may think that the reason most companies buying back shares is because the price is too low,” he said. “Buying back stock is one of the methods to increase the share value, so I believe that more listed companies will buy back their stocks to increase value soon”.

He offered a few methods to increase stock value. The easiest way for companies that have enough cash is paying more dividends or announcing a large buyback of shares, such as 10 per cent of all paid stocks.

“This method will help increase earnings per share. Stock price tends to increase with higher dividends, but you don’t have to worry if it does not increase, because the investors have already gained from higher dividends,” he said.

“Previously, there were only small or medium companies announcing share buyback when the price was low, causing share owners to maintain stock price even it was not lower than the standard”.

Another method, provided the CEO knows the true value of his company's stock, is leverage buyout - borrowing loans for the takeover or acquisition a company that does not have a major shareholder.

“To do this, the standard value of the business must be higher than the stock price. After buying all stocks with loans, the executive must pay dividends or sell some assets to pay back installments,” Dr Niwet said.

“Performing leverage buyout will help investors sell their stock which usually bid at a high price of about 50 per cent above market price at that time. This method was rarely seen in the Thai stock market, but it will be soon”.

The next method is the largest shareholder announcing a purchase of all company shares.

“This case occurs when the largest shareholder who may be a large listed company that has many businesses and wants to organise or restructure its business by taking over a subsidiary with the intention of delisting it from the stock market,” Dr Niwet said.

“The bidding to buy shares is not as high as the leverage buyout, such as buying at a price 30 per cent above the market price since the buyer, the major shareholder, already controls the company”.

The last method is outsiders taking over a company which has a standard value higher than the stock price.

“The outsider will take out bank loans to take over a company that does not have a major shareholder. The targeted company, its subsidiaries and assets should be able to provide installment payments of the takeover loans in a short time,” Dr Niwet said.

“This case is rarely seen in the Thai stock market because listed companies without owners and being subject to takeover are usually large or medium companies. This method requires a lot of money and need to be supported by a large financial institution”.

Dr Niwet said that the biggest obstacle at this time is the executives of listed companies and those involved in the capital market did not understand the method to increase stock value.

“In a developed capital market, the mechanisms which make takeover easier and generate high return on investment help and pressure executives to think about how to make full use of the company's stock,” he said.

“Leaving stock price to stay lower than the standard for a long time may increase the risk of being taken over and lead to executives losing their jobs. Meanwhile, adding value to the stock will make the executive a hero among shareholders.”