KARACHI, May 17: Arif Habib Securities Limited (AHSL) announced on Tuesday that a meeting of the company’s board would be held on May 20 to “consider buy-back of shares of the company”. That sent the price of the stock in AHSL soaring by Rs17.05 to close at Rs358.20 on Tuesday, from the opening at Rs341.15. The volume was understandably low at 10,600 shares.

Of the 20 million outstanding shares in the company, more than three-quarters are held by the sponsors and family. Public could still have stake of at least 10 per cent, which is why even seasoned stock brokers and analysts were worried that a blue-chip company was seeking ‘delisting’ from the exchanges.

But the company chairman Arif Habib explained that was not the case. “The company intends to repurchase its own shares, but remains listed on the stock exchanges,” he said. Such buy-back by the company of its own shares, which are also called ‘treasury stock’, ought not to be confused with the purchase of minority shareholdings by the sponsors of companies. Dozens of companies have sought delisting from the stock exchanges after the sponsors bought back shares held by minority shareholders.

The Securities and Exchange Commission of Pakistan (SECP) had issued the Companies (buy-back of shares) Rules, 1999 on December 14, 1999, that lays down in great detail regulations and procedures that are required to be followed by corporates in repurchase of shares. When the regulations first came to light it was believed that big corporations with heaps of spare cash would line up for ‘treasury stocks’. But more than five years later, only two companies come to mind which have sought ‘treasury stocks’ — Alhamd Textile Mills Limited, a little known company in Multan, and multi-national Siemens Engineering.

The repurchase of their own shares or treasury stock by companies has been defined as shares of a corporation’s own capital stock that have been issued and later reacquired by the issuing company, but that have not been cancelled or permanently retired.

Treasury shares may be held indefinitely or may be issued again at any time. Corporations in the developed world frequently reacquire shares of their own capital stock by purchasing from the open market. Paying out cash to reacquire shares reduces the assets of the corporation and decreases the shareholders’ equity by the same amount.

One reason for such purchases is to have stock available to reissue to officers and employees under bonus plans. Other reasons may include a desire to increase the reported earnings per share or to support the current market price of the stock. Shares of the capital stock held in the treasury are not entitled to receive dividends or to vote.

Listed in 2001, Arif Habib Securities is the flagship company of the Arif Habib Financial Services Group and the main sponsor of Arif Habib Investments — one of the leading fund managers in the country. For the third quarter (Jan-March 2005), AHSL posted a staggering sum of Rs1,207 million in after-tax profit and Rs1,498 million in net capital gain on investments. The board, which met on April 27, also declared interim cash dividend at 100 per cent.

Making such hefty profit in a period that included the March stock market crisis could be a reflection of the fund management ability of the group. “When everyone was running greedily after the over-valued oil and gas stocks, we kept ourselves out of it,” said Arif Habib, explaining the firm’s strategy. He stated that the buy-back price of the stock would be determined by the board at its meeting on May 20.