JSE-listed companies with no secondary listings spent just under R100 billion buying back their own shares in the 10 years to July 2009, Nicolene Wesson, a researcher at the Stellenbosch University Business School, told a conference hosted by the SA Finance Association (Safa) on Friday.
Wesson’s research reveals there was no Stock Exchange News Service disclosure for R34bn of this repurchase activity, so shareholders were kept in the dark about a significant aspect of their company’s financial management strategy.
The ability for a company to buy back its own shares without appropriate disclosure has raised concerns in academic circles of the potential for companies, with insider knowledge, to trade against their own shareholders. A recent amendment to the JSE’s listing requirements will ensure greater disclosure of share repurchase activity undertaken during a financial year but will not alert shareholders to upcoming repurchase activity.
Wesson’s figure understates the full extent of share repurchasing on the JSE as it does not include dual-listed companies such as Anglo American, British American Tobacco (BAT) and SABMiller.
These companies are subjected to the much more vigorous disclosure requirements of the London Stock Exchange and so were not included in Wesson’s research.
Given Anglo’s $10.8 billion (R96.8bn at Friday’s exchange rate) repurchase programme in the four years to 2009, the inclusion of dual-listed entities would have pushed the figure to over R200bn for the decade.
Wesson’s presentation to Safa is the first time the full extent of share repurchasing on the JSE has been made known and follows years of detailed analysis of annual reports. Local firms were prohibited from repurchasing their own shares until 1999 when the previous Companies Act was amended to allow for repurchasing.
The new Companies Act makes repurchasing shares even easier as it has removed the need for shareholder approval. However, in terms of the JSE listings requirements, JSE-listed companies do have to secure shareholder approval.
Wesson’s research, which was restricted to 227 of the companies listed on the JSE, revealed that these firms paid R94bn to buy back shares from shareholders.
In addition to dual-listed companies, she excluded those in the basic materials, financial and banking sectors and on AltX, when she established there was limited share repurchasing by these companies.
The R94bn spent on share repurchasing is equivalent to 36 percent of the R258bn that was spent by the 227 companies on dividends during the 10-year period. This means in the 10 years to mid 2009 these companies pumped just under R352bn back to shareholders.
Including the buyback programmes of Anglo and BAT, she suggests the JSE is more likely to be a source of money for investors than a source of money for firms. International research indicates that, in recent decades, in the US and UK listed firms have pumped out considerably more cash to investors than they have raised from them.
Wesson’s research reveals that in South Africa there was R58bn of “general” repurchases in the 10-year period, with the remainder accounted for by “specific”repurchases.
A specific repurchase is a commitment to repurchase a specified number of shares at a fixed price. These actions are easier to track.