Recently, the CSRC, the Ministry of Finance and the State owned Assets Supervision and Administration Commission jointly issued the Opinions on Supporting Listed Companies to Repurchase Shares. Previously, the draft amendment to the Company Law was deliberated and adopted at the sixth meeting of the Standing Committee of the 13th National People's Congress. Before the amendment, there were three main problems in the Company Law concerning the share buyback of listed companies, including that the circumstances allowing share buybacks were too narrow to meet the needs of market development; The procedure is complicated and cumbersome, which is not conducive to improving the enthusiasm of listed companies to buy back shares; The implementation of share repurchase by listed companies is not standardized. Now, with the adoption of the draft amendment, these problems have basically been solved.
The amended Company Law has specified six share repurchases: one is to reduce the registered capital of the company, the other is to merge with other companies that hold shares of the company, the third is to use shares for employee stock ownership plans or equity incentives, and the fourth is that shareholders require the company to purchase its shares because they disagree with the company's merger and division resolutions made at the shareholders' meeting, The fifth is to use shares to convert convertible corporate bonds issued by listed companies, and the sixth is necessary for listed companies to maintain company value and shareholders' equity. Among them, the fifth and sixth cases are the new ones, and the most concerned by the market is to protect shareholders' equity.
To revise the terms of share repurchase in the Company Law is not only the need for the development of the capital market to a certain stage, but also the objective requirement for market stability. After the National Day holiday, the Shanghai and Shenzhen stock markets continued to fall sharply. Among the six measures announced by the CSRC, share repurchase was one of them.
After the draft amendment to the Company Law was reviewed and passed, the enthusiasm of listed companies to buy back shares was aroused. According to incomplete statistics, as many as 41 listed companies disclosed the announcement of share repurchase, proposal or latest progress on the evening of the 28th, involving a maximum amount of 16.7 billion yuan. On the evening of the 29th, Ping An, China The announcement said that the company would buy back its domestic and overseas shares publicly issued at its discretion and in a timely manner, and the total amount of the buyback would not exceed 10% of the company's total issued share capital. If the maximum proportion is 10%, the maximum repurchase amount of Ping An may exceed 100 billion yuan, which will be much higher than Midea Group 4 billion yuan and Shaanxi Coal Industry 5 billion yuan, or become the most entrenched buyback program in history.
After the 2008 financial crisis, the US stock market went out of a long bull market. After April 2013, the Dow began to break new highs. One of the important factors that can not be ignored is the share repurchase of listed companies. For example, since 2009, the bull market of US stocks has lasted for nearly 10 years, which is also very rare in the global capital market. Fundamentally speaking, the biggest buyer of this round of long bull in the US stock market is the listed company itself. Take the S&P 500 index as an example. From the first quarter of 2009 to the first quarter of 2018, the cumulative total amount of repurchases of their own shares by the listed companies of the S&P 500 index reached $4.23 trillion, which also laid a solid foundation for the S&P 500 index to continuously expand its space upward. In addition, the stock price of Apple in the US stock market has performed well. In addition to its impressive performance, Apple has frequently implemented share repurchases.
It is basically impossible for A-shares to get out of the long bull market like that in the US. Most A-share listed companies come for the purpose of making money and cash out of shares. Many listed companies would not mainly buy back their shares if it were not for the pledge of equity of major shareholders or actual controllers, which is one reason why A-share listed companies buy back fewer shares nearly 30 years after their birth. In addition, for listed companies, share repurchases need to have sufficient cash flow and certain financial strength. Only when they do not affect their daily business activities can they use surplus funds to repurchase shares. But obviously, most listed companies do not have such strength. Therefore, the share repurchase of A shares can only occur in a few listed companies.
Repurchase of shares by listed companies will play a supporting role in stock prices. But share repurchase is actually a double-edged sword. According to this amendment, the repurchased shares can be used for employee stock ownership plans or equity incentives, and can be repurchased as necessary to maintain the company's value and shareholders' equity. When a listed company repurchases its shares, it has no doubt about its role in boosting market confidence and supporting stock prices. However, shares used for employee stock ownership plans and equity incentives need to be cashed out through the secondary market
If the treasury shares repurchased for the purpose of safeguarding shareholders' rights and interests are not for the purpose of reducing registered capital, the way out is also in the secondary market. Once these repurchased shares are sold, it will create huge pressure on the secondary market. In particular, when the number of shares repurchased is large enough, the psychological pressure on investors can be imagined.
Therefore, the most beneficial thing for investors is to reduce registered capital when listed companies buy back shares. By reducing the registered capital, the total share capital of listed companies becomes smaller, which will correspondingly increase the level of earnings per share and enhance the investment value of listed companies. Moreover, the total share capital will become smaller, and the number of shares circulating in the secondary market will also decrease, which will reduce the pressure of future stock price rise.
(About the author of this article: Independent financial writers have published hundreds of articles in three major securities newspapers and other media)
