KARACHI: Maple Leaf Cement Factory Ltd (MLCF) is going to buy back up to 25 million of its own shares between May 26 and August 15 at the price prevailing on the stock exchange.

Shareholders of the cement maker approved a special resolution on Tuesday that allows the company to purchase in cash a maximum of 2.27 per cent of its total issued shares having a face value of Rs10 each at the spot price during the 90-day period.

The company will use its distributable profits to purchase its own shares for the purpose of cancellation.

Firms sometimes repurchase their own stocks either to cancel them altogether or hold the same as treasury stocks, effectively bringing down the number of outstanding shares on the open market.

According to Umair Naseer of Topline Securities, buybacks by listed companies improve their earnings per share since the move reduces the total number of shares and improves break-up values.

The government introduced changes in share buyback regulations 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.

As a result of this transaction, the issued and paid-up share capital of MLCF will go down by the aggregate face value of the cancelled shares. The cement manufacturer currently has almost 1.1 billion issued shares with a free float of 45pc.

The share price of MLCF dropped 2.47pc to Rs28.02 apiece on Tuesday. The total size of the transaction at the prevailing price should be Rs700.5m. According to Topline Securities, the company’s earnings per share may increase by around 1-2pc post-buyback.

Big companies in developed economies have ramped up their share repurchases in recent years as they carry excess cash on their balance sheets.

In addition to MLCF, Netsol Technologies Ltd has also announced it’ll buy back its own shares using company funds. The technology firm said on April 11 it’d repurchase two million shares of its own, constituting 2pc of its paid-up capital currently worth Rs168.2m.

Published in Dawn, May 18th, 2022