• Listed companies profiting from buying back own shares

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    Emeterio Sd. Perez

    Emeterio Sd. Perez

    Insiders’ trades. Jonathan Yang Dee, president, chief executive officer and member of the board of Alliance Select Food International Inc., bought 5,000 of the company’s shares at P1.40 each. He made the additional acquisition on July 8 when Alliance opened at P1.44, the session’s high, and closed at its low of P1.37. The acquisition increased the number of shares he directly owned to 1.128 million shares, or 0.11 percent…..Ferdinand Orcullo Geluz, vice president and head, central business area of Manila Electric Co., reported on July 4 his initial ownership of 1,000 Meralco shares. His filing did not show the price per share and how he acquired the shares, which he probably did either in the open market or by availing himself of the company’s stock option plan…..A filing dated June 27 showed Fernando M. Ortigas, a member of the board of Concrete Aggregates Corp., owning a total of 526,290 shares of which he directly owned 1,000 shares, while 525,290 shares are lodged with PCD Nominee Corp. After buyback, what? Are the officials of the Securities and Exchange Commission (SEC) seriously watching listed companies that are buying back their own shares in the open market?

    The rule is for listed companies to also become public, which means allowing outsiders to own at least 10 percent of outstanding.

    As certain listed companies continue implementing their buyback program, their controlling stockholders might end up more than 90-percent ownership in violation of the market’s 10-percent minimum public ownership rule.

    It is the public investors who sell in case of attractive buyback prices and not the majority stockholders.

    What would follow probably is for the SEC to require violators to again comply with the rule, who, if they do, would certainly make money by selling at prices much higher that their acquisition cost.

    P1.6-billion buyback. Grand Plaza Hotel Corp. (GPH) has spent more than P1.630 billion in buying back 32.616 million of 87.318 million issued shares at P50 each. The reacquisition left the company with 54.702 million outstanding shares. GPH made its last buyback of 2.849 million shares on July 12.

    In a filing posted on the Web site of the Philippine Stock Exchange (PSE), GPH said that it has offered to buy at P50 each one share for every 20 shares held by stockholders as of June 14. But it also gave stockholders who hold certificates the option to offer their entire allocation or a portion of their GPH shares.

    Grand Hotel Plaza has been engaged in a continuing share buyback. Available PSE posting showed it already had accumulated 24.916 million treasury shares as of June 30, 2011, which restricted the company’s retained earnings of P1.435 billion by P1.246 billion.

    Improved value but . . .Buying back its own shares may improve the market value of a listed company’s stock. But the restriction effect on retained earnings reduces opportunity for declaration of dividend.

    GPH last distributed dividend of P62.403 million in 2010 when it had P1.324 billion surplus and treasury shares worth P1.246 billion. By the end of 2010, it reported P251.564 million unrestricted retained earnings including the year’s net profit of P173.403 million.

    By March 31, 2013, GPH has piled up retained earnings of P1.657 billion but also had used up P1.488 billion in reacquiring its own shares. This means, of the surplus, only P169 million plus the quarter’s net income equals P213 million would be declarable as dividend.

    GPH, the hotel’s market symbol, was last transacted on October 4, 2012, when it traded through the session at P45 on volume of 1,000 shares.

    More buybacks. As of July 11, South China Resources Inc. had 2.404 million treasury shares after buying 30,000 of its own shares at P1.06 each. The buyback reduced the company’s outstanding shares to 904.156 million. South China Resources began implementing its buyback plan on December 22, 2011, which will end on December 22 this year.

    South China Resources plans to reacquire a total of 100 million shares. South China Resources hit a low of P1.06, the stock’s opening, and closed at its high of P1.09 on July 11. As of March 31, 2013, it had P924.168 million retained earnings with P500 million appropriated possibly for its share buyback, the company reported P1.928-million worth of treasury shares in its 2013 first-quarter filing.

    esdperez@gmail.com

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    1 Comment

    1. Gloria M. Kuizon on

      Until most of the blue-chip companies in the Philippines comply with the 10% public ownership of their stock, the country’s stock market will remain a club controlled by the elite and the few foreigners who want to make money on the bourse’s being one of the active places in the world.

      But even if public ownership does increase, it would still not mean our economy has become democratic. It will still be an oligopoly for less than 1% of the population can afford to play at the stock exchange. Meanwhile more than 30% of the population live below the poverty line and another 30 percent are just barely able to survive so they are also almost dirt poor.

      And also meanwhile, congressmen and senators, as well as a great many officials of the executive department under President Aquino, have pork barrel and unaudited intelligence funds that they misuse or pocket. They spend these funds for their own enrichment, sometimes for property abroad.

      Gloria M. Kuizon
      Novaliches, Qc