KARACHI, Sept 8: The National Bank of Pakistan has shown its intention to buy-back floating shares in the stock market. But how much shares the bank will buy would be decided in a proposed meeting expected to be held on Sept 12.

According to market experts, it is a government-motivated move to give life to the crippling shares market.

The government still holds 76.3 per cent shares in the NBP. The bank has 212 million floating shares while its total outstanding shares are 879 million shares.

“Buy backs are generally carried out at times of crisis in equity markets. For instance on Oct 19, 1987 (also known as black Monday), stock prices in the United States plunged 20 per cent,” said Frahan Rizvi, researcher at the JS Company.

The following day the Citicorp approved a plan to repurchase $250 million of the company’s stock and was followed by a number of other companies. As a result firms announced a buy-back plan worth a massive $6.2 billion which helped to stem the slide in the stock prices,” said Mr Rizvi.

“Given the prevailing market situation, any substantial buy-back by the NBP could be a good support tool for the market. Moreover, similar exercise by other companies could also lend strong support to equity markets,” he added.

However, some analysts believe that even buy-back by the NBP would not help the market to wake up as the previous activities have shown.

“Over three dozen companies have bought back their shares to support ever weakening shares market but the end result is still negative,” they said.

“It is a good move that NBP will buy back its share but the other fundamentals needed to drive the market fast, are weak,” said Mohammad Imran, head of research at the FCEL.

He said heavy foreign selling was witnessed in the NBP in the recent weeks. Foreign holdings in NBP were about 7.1 per cent which fell to approximately at 2 per cent.

The share buy back process in Pakistan is governed by Section 95A of the Companies Ordinance, 1984 and the Companies (Buy-back of Shares) Rules, 1999. According to these rules shares buy back is to be authorised by a special resolution which will indicate the maximum number of shares to be purchased, the maximum price and the period within the purchase is to be made.

Mr Rizvi said the shares purchased as a result (buyback) could not be resold and would be cancelled.

The NBP in a notice at the KSE has announced holding an emergent board meeting on Sept 12 to review a proposal to buy back the company’s shares. The company intending to buyback shares is also required to have a debt to equity ratio of 75:25 and current ratio of 1:1.