FE Report (March 07, 2011)
Finance Minister AMA Muhith Monday said that the 'buy-back' system would be introduced in the capital market soon.
To have the planned system implemented, the Companies Act would be amended, he added.
"The Companies Act will be amended to include the policy of buy-back," Mr Muhith told reporters after a meeting with a delegation of Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) at his secretariat office.
Muhith said he has already instructed the concerned officials to prepare a draft of the bill, providing for 'buy-back' arrangement. "We will discuss with the stakeholders concerned while formulating the draft," he said.
"The amended Companies Act incorporating the 'buy-back' policy will be placed in parliament during the ongoing session," the minister added.
The FBCCI delegation was led by its president AK Azad. President of Bangladesh Association of Publicly Listed Companies (BAPLC) Salman F Rahman and representatives from Bangladesh Textile Mills Association (BTMA) and Rugna Shilpa Samiti attended the meeting.
The BAPLC president said they had suggested inclusion of the buy-back policy in the Companies Act. Its implementation will definitely bring large-scale improvement to the market, he asserted.
Under the proposed policy, any company would have to buy their shares back from the market if the market value of the same falls below the sum of their initial face value plus premium, if there is any.
Generally, under the buy-back system, a company has to buy their own shares back equivalent to a certain percentage of its paid-up capital.
"The policy's implementation will benefit the investors and the related company will also be benefited, as taking back the shares will increase their earning per share," the BAPLC president added.
"The amount of shares that will be bought back and their prices will have to be set beforehand," Salman Rahman said.
He said the buy-back policy is practised in many countries including UK and India.
Once the buyback law is passed, a company will buy back its own shares that are held by the public either to increase the value of its shares or to eliminate the threat by shareholders who may be looking for a controlling stake.
Reasons for buybacks include putting unused cash to use, raising earnings per share, increasing internal control of the company, and obtaining stock for employee stock option plans or pension plans.
The Dhaka Stock Exchange (DSE) initiated a move in early 2009 for introduction of the buyback law but the move was not successful.
The FBCCI chief said that they had urged the minister to implement the decision to waive interests of 280 non-textile and 180 textile mills as the establishments are now sick.
It is learnt that Securities and Exchange Commission is now busy preparing the buy-back policy to be included in the existing Companies Act.
Experts for soliciting public
views before finalisation
Meanwhile, another FE report adds: The government should take the opinions of experts and stakeholders before finalising the guidelines on share buy-back for the sake of a transparent law, which will not be controversial in the future, experts said.
They said the company owners can misuse the provision of share buy-back system if the guidelines are not designed carefully for the sake of the market and shareholders.
Their comment comes after the government's recent initiative to introduce a law of share buy-back, by amending the Companies Act 1991.
"The government should not finalise the law of share buy-back without sufficient discussion with the experts and stakeholders," Mirza AB Azizul Islam, the former SEC chairman and ex-adviser to the caretaker government, told the FE.
According to a source, the Securities and Exchange Commission (SEC) has already finalised a draft of share buy-back, by imposing one year's restriction on liquidity expansion from the date of execution of buy-back.
And after execution of the process, the company will have to destroy the shares, which will be bought back within seven days.
But as per the guideline, a company can buy its shares back only when it will own excess liquidity that cannot be used in absence investment scope.
However, in Bangladesh very few companies, except some multinational ones, own excess liquidity.
The SEC (Securities and Exchange Commission) has designed guidelines following the neighboring country India, which allows a company to buy its shares back by imposing one-year restriction on liquidity expansion.
Mr. Islam said, due to window-dressing balance sheet, it would be very difficult to identify the companies, which really own excess liquidity.
"In many cases, it becomes very difficult to take action against the companies, which submit window-dressing balance sheets," he said.
"So, any company can intend to buy its shares back by showing excess liquidity. That's why, the regulator can include a provision of liquidity expansion through repeat IPO (initial public offering)," Mr Islam said.
However, he welcomed the government's initiative.
Economist Professor Abu Ahmed said, a company should not be allowed to buy its shares back with a borrowed surplus fund.
"A company must have distributable surplus funds to buy its shares back," Ahmed told the FE.
He said one year's restriction on liquidity expansion is very short, adding, "The restriction period should be at least two years. Otherwise, the companies will get a scope to do business after a short-term restriction."
He also suggested to the government to study the laws of other countries before finalising the guidelines of share buy-back.
However, the securities regulator will refer the guidelines to the finance ministry, which will later send it to the commerce ministry.
Normally, a share buy-back means the purchase by a company of its own shares in the market and these shares will be declared null and void.
The advantage of buy-backs is that, by boosting the share price, they give shareholders capital gains rather than income as the volume of free-floated shares reduces after the execution of buy-back and company's earning per share (EPS) increases.
Another advantage of a share buy-back is that it gives shareholders more flexibility than a dividend as it allows shareholders to choose when, if they must, to sell and realise their cash.
Finance Minister AMA Muhith Monday said that the 'buy-back' system would be introduced in the capital market soon.
To have the planned system implemented, the Companies Act would be amended, he added.
"The Companies Act will be amended to include the policy of buy-back," Mr Muhith told reporters after a meeting with a delegation of Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) at his secretariat office.
Muhith said he has already instructed the concerned officials to prepare a draft of the bill, providing for 'buy-back' arrangement. "We will discuss with the stakeholders concerned while formulating the draft," he said.
"The amended Companies Act incorporating the 'buy-back' policy will be placed in parliament during the ongoing session," the minister added.
The FBCCI delegation was led by its president AK Azad. President of Bangladesh Association of Publicly Listed Companies (BAPLC) Salman F Rahman and representatives from Bangladesh Textile Mills Association (BTMA) and Rugna Shilpa Samiti attended the meeting.
The BAPLC president said they had suggested inclusion of the buy-back policy in the Companies Act. Its implementation will definitely bring large-scale improvement to the market, he asserted.
Under the proposed policy, any company would have to buy their shares back from the market if the market value of the same falls below the sum of their initial face value plus premium, if there is any.
Generally, under the buy-back system, a company has to buy their own shares back equivalent to a certain percentage of its paid-up capital.
"The policy's implementation will benefit the investors and the related company will also be benefited, as taking back the shares will increase their earning per share," the BAPLC president added.
"The amount of shares that will be bought back and their prices will have to be set beforehand," Salman Rahman said.
He said the buy-back policy is practised in many countries including UK and India.
Once the buyback law is passed, a company will buy back its own shares that are held by the public either to increase the value of its shares or to eliminate the threat by shareholders who may be looking for a controlling stake.
Reasons for buybacks include putting unused cash to use, raising earnings per share, increasing internal control of the company, and obtaining stock for employee stock option plans or pension plans.
The Dhaka Stock Exchange (DSE) initiated a move in early 2009 for introduction of the buyback law but the move was not successful.
The FBCCI chief said that they had urged the minister to implement the decision to waive interests of 280 non-textile and 180 textile mills as the establishments are now sick.
It is learnt that Securities and Exchange Commission is now busy preparing the buy-back policy to be included in the existing Companies Act.
Experts for soliciting public
views before finalisation
Meanwhile, another FE report adds: The government should take the opinions of experts and stakeholders before finalising the guidelines on share buy-back for the sake of a transparent law, which will not be controversial in the future, experts said.
They said the company owners can misuse the provision of share buy-back system if the guidelines are not designed carefully for the sake of the market and shareholders.
Their comment comes after the government's recent initiative to introduce a law of share buy-back, by amending the Companies Act 1991.
"The government should not finalise the law of share buy-back without sufficient discussion with the experts and stakeholders," Mirza AB Azizul Islam, the former SEC chairman and ex-adviser to the caretaker government, told the FE.
According to a source, the Securities and Exchange Commission (SEC) has already finalised a draft of share buy-back, by imposing one year's restriction on liquidity expansion from the date of execution of buy-back.
And after execution of the process, the company will have to destroy the shares, which will be bought back within seven days.
But as per the guideline, a company can buy its shares back only when it will own excess liquidity that cannot be used in absence investment scope.
However, in Bangladesh very few companies, except some multinational ones, own excess liquidity.
The SEC (Securities and Exchange Commission) has designed guidelines following the neighboring country India, which allows a company to buy its shares back by imposing one-year restriction on liquidity expansion.
Mr. Islam said, due to window-dressing balance sheet, it would be very difficult to identify the companies, which really own excess liquidity.
"In many cases, it becomes very difficult to take action against the companies, which submit window-dressing balance sheets," he said.
"So, any company can intend to buy its shares back by showing excess liquidity. That's why, the regulator can include a provision of liquidity expansion through repeat IPO (initial public offering)," Mr Islam said.
However, he welcomed the government's initiative.
Economist Professor Abu Ahmed said, a company should not be allowed to buy its shares back with a borrowed surplus fund.
"A company must have distributable surplus funds to buy its shares back," Ahmed told the FE.
He said one year's restriction on liquidity expansion is very short, adding, "The restriction period should be at least two years. Otherwise, the companies will get a scope to do business after a short-term restriction."
He also suggested to the government to study the laws of other countries before finalising the guidelines of share buy-back.
However, the securities regulator will refer the guidelines to the finance ministry, which will later send it to the commerce ministry.
Normally, a share buy-back means the purchase by a company of its own shares in the market and these shares will be declared null and void.
The advantage of buy-backs is that, by boosting the share price, they give shareholders capital gains rather than income as the volume of free-floated shares reduces after the execution of buy-back and company's earning per share (EPS) increases.
Another advantage of a share buy-back is that it gives shareholders more flexibility than a dividend as it allows shareholders to choose when, if they must, to sell and realise their cash.
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