KARACHI: Lucky Cement Ltd told investors on Friday it wants to buy back up to 10 million of its own shares from the stock market for the purpose of cancellation.

The move is aimed at improving the “future financial position” of the company, said a regulatory filing on the stock exchange.

Of late, many listed companies have resorted to repurchasing their own shares from the ready market. The total number of shares goes down once a company conducts a share buyback. As a result, the company’s break-up value and profit per outstanding share go up.

Lucky Cement will start buying back its shares on Sept 29. It’ll keep repurchasing the shares until Dec 19 or the date when the targeted buyback volume is achieved.

It’ll use the funds from its “distributable profits” and utilise its “internally generated cash flows” for the transaction. The buyback will take place at the share price prevailing on the stock exchange during the purchase period.

“It’ll also provide an opportunity of exit to those members who wish to liquidate their investment fully or partially,” it said.

Recent changes in share buyback regulations seem to have encouraged listed companies to repurchase their own stocks on the stock exchange.

This is in line with a global trend. Big companies in developed economies have ramped up their share repurchases as they carry excess cash on their balance sheets and expect stock prices to go up.

Netsol Technologies Ltd and Maple Leaf Cement Factory Ltd repurchased portions of their respective outstanding shares in recent months.

Speaking to Dawn, JS Global Assistant Vice President Waqas Ghani said a share buyback is an indication that the company likes its own stock enough to buy it back. He said the intended volume of buyback shares (10m) constitutes 8pc of the company’s free float, which means the shareholding that’s in the hands of public investors as opposed to locked-in shares held by the sponsors.

The number outstanding shares of Lucky Cement will reduce to 313m from 323m after the transaction.

With the market capitalisation of Rs171 billion, the current price of 10m shares is going to be Rs5.28bn. The company’s share price declined 0.39pc to Rs518.78 apiece.

According to a recent research report by Topline Securities, companies repurchase their own stocks sometimes to cancel them altogether or hold them as treasury stocks. Both moves effectively reduce the number of outstanding shares on the open market.

The changes in buyback regulations were introduced via an amendment to Companies Act 2017 on Dec 4, 2021. Now the repurchase can only be made through the stock exchange on the basis of the prevailing share price. This is different from the previously allowed method of a

tender offer, which involved a company asking stockholders to sell its shares for a specific price at a predetermined time.

Published in Dawn, August 27th, 2022