Share buybacks down as firms hoard cash

Commodities trader Noble Group was the most aggressive repurchaser from June to August last year, but has not made any buybacks since.
Commodities trader Noble Group was the most aggressive repurchaser from June to August last year, but has not made any buybacks since. PHOTO: REUTERS

Analysts cite market uncertainty and importance of balance sheet strength as factors for falling-off

Corporate share buybacks have fallen this year despite a broad drop in trading prices as Singapore-listed companies opted to sit tight on their cash piles.

Companies here bought back $615 million of their own shares in the first seven months of the year, down markedly from $717 million in the first seven months of 2015, said a Singapore Exchange report out yesterday.

"Broadly speaking, companies are more cautious, and many in the offshore marine space would like to conserve cash," said Azure Capital chief executive Terence Wong.

"In the past, they had more fundraising options like equity placings and bonds, but now that seems like a bad word after the Swiber moment," he added.

In July last year, Keppel Corp, Ezion Group, Marco Polo Marine, Nam Cheong and KTL Global together repurchased $4.3 million of shares. The same sector accounted for just $0.65 million worth of buybacks this July, led by Pacific Radiance.

Commodities trader Noble Group was the most aggressive repurchaser from June to August last year, but has not made any buybacks since.

Firms typically conduct share buybacks when confident of their prospects. By repurchasing shares from investors on the open market and converting them into treasury shares, firms cut their share count - boosting earnings per share.

With the benchmark Straits Times Index down 10 per cent from a year ago, the slowdown in buybacks could imply that firms are expecting slower profit growth, said RHB Research head Ong Kian Lin.

"They are less aggressive because they need to conserve 'gunpowder' for the future," he said.

Another possibility is that as uncertainty prevails, balance sheet strength is more important to investors, and buybacks no longer give them the assurance they once did.

"So companies might as well wait and see," said Mr Wong.

Last month, 52 million shares worth $71 million were repurchased by 31 firms, down from $82 million worth of shares in July last year, and $218 million in June.

The stronger buyback activity in June was largely seasonal, said Ms Andrea Chee, partner at Shook Lin & Bok. "Listing rules prohibit companies from dealing in their own shares for two weeks before financials for the first three quarters are announced, and for one month before full year financials are announced," she said. "So for a company that released financial results in May and intends to schedule board meetings to discuss the next quarter's financials in July or August, June is seen as a safe window for share buybacks."

The five stocks with the largest buyback consideration value last month were Global Logistic Properties, Olam International, Wilmar International, OCBC Bank and Silverlake Axis.

A version of this article appeared in the print edition of The Straits Times on August 11, 2016, with the headline 'Share buybacks down as firms hoard cash'. Print Edition | Subscribe