Share buy back awaits economic recovery

JAKARTA (JP): Buying back shares is not popular among companies listed on the local stock exchange even though many of the companies' shares are undervalued.

Securities analysts said listed companies with undervalued share prices and good fundamentals certainly wanted to buy back shares to prop up prices, but they did not have the cash.

Andre Cita of Bahana Securities said on Saturday that any rush to buy back shares would not happen as long as the country's economy remained distressed.

"I think we'll have to wait for more than six months to see the buyback become a trend because most companies are not cash- rich," Andre told The Jakarta Post.

Andre said companies certainly wanted to correct their undervalued shares, which had been depressed by the economic crisis, but would have to wait until they had the cash to do so.

Buybacks, which previously were banned for fear they could harm public investor interest, recently were legalized, giving listed companies the opportunity to prop up the prices of their undervalue shares.

Plastics components manufacturer Dynaplast and securities company Makindo said recently they each planned to buy back up to 10 percent of their shares to prop up their ailing stock prices.

They would be the first publicly listed companies to carry out stock buyback programs.

Securities analysts have responded positively to the companies' announcements.

"As long as the deals are transparent, they will not harm the investing public," one of the analysts said.

Some investors have expressed fear that buybacks would only benefit share issuers because they could involve insider trading.

Andre said buybacks also would advantage public investors in general because the increased prices resulting from buybacks would drive up the market index.

An equity manager at a security firm affiliated with a state bank shared Andre's views, saying now was not the time for buybacks.

"There will not be frequent buybacks despite undervalued shares and good fundamentals because companies now need cash flow," he said.

However, he said buybacks would be possible when companies returned to normal operations after the economy fully recovered, if the companies' shares were still undervalued.

There is however a risk for the investment climate if a large number of companies buy back their shares, he said.

The Capital Market Supervisory Agency has to be more stringent in enforcing existing regulations in order not to create any negative impact from a lack of transparency in the buybacks, he said.

"They have to enforce the law strictly according to the definition of each regulation or restriction...," he said. (udi)