Share buybacks - tips to stay on SGX's right side

As stock markets around the world tumble, many issuers are looking at the silver lining – a golden opportunity to undertake share buybacks, which offer multiple benefits, including: presenting the market a confident outlook as the company takes the lead on signalling “buy”, bulking up the company’s treasury shares reserve for quick capitalisation on future upturns, and improved EPS numbers. 

Issuers interested in share buybacks must have a mandate from shareholders.

Some tips to stay on SGX’s right side when executing share buybacks:

1.      Maximum number of shares that can be repurchased: 10% of issued shares as at date buyback approval was obtained (often the share capital as at the last AGM)

2.      Do not pay more than 105% of average closing market price over the last 5 consecutive active trading days for on-market purchases

3.      Do not undertake share buybacks when there is unannounced material information – the issuer itself may get in hot water for insider trading

4.      Best practice, according to SGX, is not to undertake share buybacks 2 weeks before quarterly financials are released & 4 weeks before full year financials are released

5. Be aware that certain methods of repurchasing shares have been flagged by SGX as problematic and may be viewed as misconduct, including:

a. Purchasing a few shares near or at market close, resulting in the impression that the share price is on a rising trend

b. Purchasing shares despite increasingly higher prices, which may be viewed as being meant to influence closing prices

c. Purchasing “excessively” e.g. share buybacks constituting more than 30% of the daily on-market traded volume, which may be viewed as artificial inflation of trading volume and price