Listed firms buy more treasury stocks to prevent price falls
Many listed companies plan to buy tens of trillions of dong in treasury stocks.
Vinamilk, the nation’s leading dairy producer, plans to spend VND1.8 trillion to buy 17.5 million shares.
Khang Dien, a real estate developer, plans to pay VND448 billion for 20 million shares. CII, an infrastructure developer, has also decided to buy 14 million shares as the share price has dropped by 30 percent.
Hoa Binh Construction has registered to buy 10 millions shares to stabilize the stock prices. The money used to buy treasury stocks is from the 2019 undistributed profits.
Seeing share price falling to a low, IDICO plans to buy 15 million treasury stocks. VP Bank, listed among the most profitable banks in recent years, plans to buy 5 percent of shares in circulation, or 122 million.
A lot of enterprises in many different business fields have decided to take action to save share prices from falling. PAN Group registered to buy 21.6 million shares (10 percent), Hoang Huy Investment and Service 25 million shares, and Thien Long Group 1.5 million shares.
“When investors panic and the share prices fall too much below the companies’ potential and value, they first plan to buy treasury stocks,” said Nguyen Tra My, CEO of Pan Group.
Buying back shares for treasury shares is the strategy used by many listed companies when the market slides. This helps stop the decline in enterprise value and avoids the risk of being taken over at low prices.
|Khang Dien, a real estate developer, plans to pay VND448 billion for 20 million shares. CII, an infrastructure developer, has also decided to buy 14 million shares as the share price has dropped by 30 percent.|
However, analysts said buying treasury stocks is not always a wise move. In some cases, it may send negative messages to investors. Doubts may be raised that the executives of the companies don’t know what to do with the cash they have.
Some listed companies may have to borrow money to buy treasury stocks. This will result in increased debt which puts financial pressure on enterprises.
“Buying treasury stocks at this moment will be just a waste, because nothing can prevent the long-term downward trend,” said Phan Le Thanh Long, director of CMA Australia in Vietnam.
He said that spending big money to buy stocks will bring disadvantages to enterprises because they may be short of money when things return to normal.
Instead of using trillions of dong to buy treasury stocks, enterprises can use the amount of money for other purposes to increase the enterprises’ value.
As many as 102,000 trading accounts opened in the last months, showing the attractiveness of the stock market.
The stock market experienced a sharp decline in Q1. KIS Vietnam has advised investors not to ‘sell in May and go away’.