Share buy back awaits economic recovery<\/p>\n
JAKARTA (JP): Buying back shares is not popular among
\ncompanies listed on the local stock exchange even though many of
\nthe companies' shares are undervalued.<\/p>\n
Securities analysts said listed companies with undervalued
\nshare prices and good fundamentals certainly wanted to buy back
\nshares to prop up prices, but they did not have the cash.<\/p>\n
Andre Cita of Bahana Securities said on Saturday that any rush
\nto buy back shares would not happen as long as the country's
\neconomy remained distressed.<\/p>\n
\"I think we'll have to wait for more than six months to see
\nthe buyback become a trend because most companies are not cash-
\nrich,\" Andre told The Jakarta Post.<\/p>\n
Andre said companies certainly wanted to correct their
\nundervalued shares, which had been depressed by the economic
\ncrisis, but would have to wait until they had the cash to do so.<\/p>\n
Buybacks, which previously were banned for fear they could
\nharm public investor interest, recently were legalized, giving
\nlisted companies the opportunity to prop up the prices of their
\nundervalue shares.<\/p>\n
Plastics components manufacturer Dynaplast and securities
\ncompany Makindo said recently they each planned to buy back up to
\n10 percent of their shares to prop up their ailing stock prices.<\/p>\n
They would be the first publicly listed companies to carry out
\nstock buyback programs.<\/p>\n
Securities analysts have responded positively to the
\ncompanies' announcements.<\/p>\n
\"As long as the deals are transparent, they will not harm the
\ninvesting public,\" one of the analysts said.<\/p>\n
Some investors have expressed fear that buybacks would only
\nbenefit share issuers because they could involve insider trading.<\/p>\n
Andre said buybacks also would advantage public investors in
\ngeneral because the increased prices resulting from buybacks
\nwould drive up the market index.<\/p>\n
An equity manager at a security firm affiliated with a state
\nbank shared Andre's views, saying now was not the time for
\nbuybacks.<\/p>\n
\"There will not be frequent buybacks despite undervalued
\nshares and good fundamentals because companies now need cash
\nflow,\" he said.<\/p>\n
However, he said buybacks would be possible when companies
\nreturned to normal operations after the economy fully recovered,
\nif the companies' shares were still undervalued.<\/p>\n
There is however a risk for the investment climate if a large
\nnumber of companies buy back their shares, he said.<\/p>\n
The Capital Market Supervisory Agency has to be more stringent
\nin enforcing existing regulations in order not to create any
\nnegative impact from a lack of transparency in the buybacks, he
\nsaid.<\/p>\n
\"They have to enforce the law strictly according to the
\ndefinition of each regulation or restriction...,\" he said.
\n(udi)<\/p>",
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