Sharebuy backs in 2011: Destroying shareholder value

In Corporate governance on 11/01/2012 at 5:38 am

Around 96 companies recorded 3,007 repurchases worth $1.059 billion in 201 according to the managing director, Asia Insider Limited, in his latest weekly BT column.”The number and value of transactions were second highest yearly totals since buybacks were introduced in June 1999, second only to the buybacks during the global recession in 2008.

‘The number and value of transactions in 2011 were sharply higher than the yearly averages of 1,281 trades and $526 million from 2000 to 2010. The heaviest buybacks occurred in the third quarter with 59 companies posting 895 transactions worth $455 million, which accounted for 61 per cent, 30 per cent, and 43 per cent, respectively, of the totals in 2011.

‘The most bullish sector in terms of value was transport with $276 million worth of repurchases in 2011. In terms of number of trades, property stocks recorded 739 transactions in 2011.”

As companies are supposed to buyback shares only when mgt believes that the market undervalues their shares, the  following revelations are absurdly funny:

— “Only 15 out of the 96 [or 16 percent] listed firms that bought back shares recorded gains from their average buyback prices in 2011. The price gains ranged from 5 per cent to 61 per cent with an average increase of 13 per cent.”

— Some 60 firms or 63 per cent of the companies that bought back shares in 2011 saw their share prices drop by 5 per cent to 47 per cent from their average buyback prices with an average fall of 19 per cent.”

Not mgts’ money leh? Hence the failure to stop buback programmes in a bear market?

  1. Sometimes the buybacks are timed to benefit insiders (who are selling.) Or these executives are simply not that brilliant. (then why benchmark Ministers pay to these financially inept people?)

  2. Not too bad a record there – at least none of the shares bought were from companies that later folded which is more than you can say for a SWF.

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