ISLAMABAD (January 23 2009): The Securities and Exchange Commission of Pakistan (SECP) has issued draft of the “The Companies (Buy-Back of Shares) Regulations, 2009,” to elaborate the procedure for the listed companies to buy back/repurchase their own shares.
The commission on Thursday issued draft SRO(I)/2009 for obtaining viewpoint of the stakeholders on the new procedure.
The draft regulations have also specified conditions for companies to purchase their own shares. A company may purchase its own shares if it has paid-up capital of Rs 200 million and above, based on the latest audited accounts, its total debt is not more than three (3) times of its equity, and its current assets are not less than its current liabilities. The company's free float is not less than Rs 100 million (face value).
Other conditions included that it has obtained approval by way of special resolution held within a period of five (5) weeks of the date of meeting of the board of directors proposing the purchase. During the purchase period, a purchasing company shall not file petition for voluntary winding up and it has to fulfil other conditions specified in the notification.
The draft regulations have also elaborated the role of the stock exchange(s) on which the shares being purchased are listed. The stock exchange on receipt of copy of the special resolution passed by the purchasing company shall circulate it to all its members, post it on its notice board, place it on its website and automated information system and announce it on its house. Other details have been specified in the proposed regulations.
Details reveal that pursuant to the amendments in Section 95 A of the Companies Ordinance, 1984, the SECP has approved the draft, “The Companies (Buy-Back of Shares) Regulations, 2009”. The draft has been placed on the Commission's website: http://www.secp.gov.pk/DraftAmendments/trs_draft_09.pdf and is being published in the official gazette for soliciting public opinion as required under Section 506 A of the Ordinance.
According to the SECP, section 95A of the Ordinance, recently notified by the Federal Government allows the listed companies to buy-back/repurchase their own shares and hold such shares as Treasury Shares, whereas under the old Section 95A, the repurchased shares were required to be cancelled. The buy-back /repurchase may be used as a tool to bring stability in market prices of the shares that are undervalued on stock market. Buy-back/repurchase of shares by listed companies may consequently improve earning per share.
The draft regulations provide detailed modus operandi for buy-back/repurchase of shares including eligibility of the purchasing companies, purchase procedures, role and responsibilities of the purchasing companies, the manager to the purchase agents, contents of the public announcement & procedures for its publication, maximum holding of treasury shares and the manner in which treasury shares can be disposed off.
The draft regulations require the board of directors of a purchasing company to make a declaration that the purchasing company is solvent and is capable of meeting its liabilities on time, for the period of at least twelve months from the date of such declaration.
The shares may be purchased either by way of tender offer through a manager to the purchaser or from the stock market through a purchase agent. Manager to the purchase may be a corporate brokerage house, a commercial bank, a development financial institution or an investment bank not being an associated company or associated undertaking of the purchasing company. Whereas, a purchase agent should be a corporate brokerage house, not being an associated company or associated undertaking of the purchasing company holding valid brokerage license and membership of the stock exchange on which the purchasing company is listed.
The draft regulations restrict the maximum holding of treasury shares to 10 percent of the paid-up capital of the purchasing company and require that the accounting treatment of the purchase, cancellation and disposal of treasury shares shall be disclosed in the ensuing financial statements of the purchasing companies in accordance with the requirements of the International Financial Reporting Standards, SECP added.
The purchasing company shall file a return, on the prescribed format about the purchase with the commission, the registrar and the stock exchange(s) on which the purchasing company is listed, within 30 days of the closing of the purchase period.
