By Chew Yi Hong and Mak Yuen Teen 

On March 25 (Are share buy-backs distorting the market, Business Times), we wrote about four companies that have conducted share buybacks so far in 2021 that might have potentially impacted the volume and/or price of its shares. As pointed out in the Regulator’s Column of SGX Regco, companies should refrain from share buybacks when there are material developments or any unannounced material information which may have an impact on the company’s share price or trading volume, until such information has been publicly disclosed.

We did not observe any of the four companies making material announcements when they were conducting their share buy-backs.

Enter Company X

Company X carried out 10 share buy-backs in 2021, with the most recent purchase on March 23 when it bought back 276,100 shares which accounted for 93% of the day’s total volume. In the 10 buy-back transactions in 2021, it had averaged 48% of the day’s volume. On two occasions, the company’s buybacks accounted for 14%-19% of the daily volume and 33% on another day. On seven other occasions, it was between 44% and 93%.

Over the weekend, and just three trading days after the last share buyback, the company proposed a major corporate restructuring under which the company will explore divesting its portfolio of hotels. It will continue to maintain its hotel management business while shifting to an asset-light strategy.

Based on the wording of the announcement, it does not seem like it is the recipient of an unsolicited offer to purchase its hotels. Such a major strategic change would likely not have happened overnight. Company X made two share buybacks in the third week of March and one in the fourth week of March, just three trading days before the announcement.

This morning, the share price of Company X increased by nearly 17% when it opened for trading.

Companies should be more cautious when they are conducting share buybacks. Prudence should be exercised to comply with the Securities and Futures Act provisions and the letter and spirit of the rules set  by SGX Regco.