KARACHI: Bank Alfalah Ltd said on Friday it completed the buyback of 200 million shares in line with a special resolution that its shareholders passed in the first week of December.

The commercial lender purchased its shares from the stock market in small chunks over the last two weeks at the prevailing rate.

Speaking to Dawn, Arif Habib Ltd CEO Shahid Ali Habib said financially sound companies should actively pursue buybacks to increase their valuations.

Many listed companies have carried out share repurchase exercises in the ready market. The total number of shares goes down once a company conducts a buyback, leading to an increase in its break-up value and profit per outstanding share.

“A buyback gives the investor the message that the sponsor is optimistic about the company’s future. The repurchase of shares is good for the company as well as the investor,” he said.

The shares targeted for the buyback exercise constituted about 11.25 per cent of Bank Alfalah’s total shareholding. It equalled 32.15pc of the free float, which is the part of shareholding not owned by the sponsors and, therefore, can be bought and sold easily on the stock exchange.

As for the resulting reduction in a company’s public float, Mr Habib said the same entity can always opt for raising fresh capital by issuing new shares whenever the market sentiments improve.

The repurchase rate for Bank Alfalah hovered around Rs30 apiece, which means the size of the transaction was roughly Rs6 billion. Mr Habib said the amount makes the Bank Alfalah buyback the largest of its kind transaction in Pakistan so far.

Sponsors of Maple Leaf Cement Factory Ltd and NetSol Techno­logies Ltd have already completed their buybacks. The repurchase exercises by Engro Corporation Ltd, Lucky Cement Ltd and JDW Sugar Mills Ltd are ongoing.

The purpose of the buyback for Bank Alfalah was the cancellation of shares. The exercise will lead to an increase in the earnings per share of the bank. The purchase period began on Dec 14 and was to last until June 2, 2023. However, the bank managed to scoop up the targeted volume in just a couple of weeks.

The bank used its distributable profits to buy back the shares. The exercise will also have a positive impact on the bank’s break-up value and return on equity.

Companies buy back their stocks to either cancel them altogether or hold them as treasury shares. Both moves result in the reduction of the number of outstanding shares available in the open market.

The changes in buyback regulations were introduced via an amendment to the Companies Act 2017 on Dec 4, 2021. Now the repurchase can only be made through the stock exchange based on 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, December 31st, 2022