Share Buybacks in Singapore: A Comprehensive Guide

 

Share Buybacks in Singapore: A Comprehensive Guide

Understanding Share Buybacks

A share buyback, also known as a repurchase, occurs when a company purchases its own shares from existing shareholders. This can be done in various ways, such as through an equal access scheme or selective off-market purchases.

Why Consider a Share Buyback?

There are several reasons why a company might choose to buy back its own shares:

• Excess Capital: When a company has excess capital that it cannot effectively or profitably reinvest in the business, a share buyback can be a way to return value to shareholders.
• Improved Financial Ratios: Repurchasing shares can boost financial ratios like earnings per share and return on equity, making the company appear more attractive to investors.
• Rewarding Shareholders: Share buybacks are a direct way to reward shareholders and demonstrate confidence in the company's future.

Procedure for Share Buybacks

The process of executing a share buyback involves several key steps:

1. Obtain Shareholder Approval: The company must obtain approval from its shareholders to conduct a share buyback. This can be done through a general meeting or a special resolution, depending on the type of buyback.
2. File Necessary Documents: The company must file certain documents with the Accounting and Corporate Regulatory Authority (ACRA), including a resolution and a notice of purchase or acquisition.
3. Purchase Shares: The company can then purchase its own shares from existing shareholders. The method of purchase will depend on the type of buyback chosen.
4. Cancel or Hold Treasury Shares: Repurchased shares can either be canceled or held as treasury shares.

Cost of Share Buybacks

There are costs associated with share buybacks:

• Stamp Duty: A stamp duty is payable on the value of the shares purchased.
• Funding: The company must have sufficient funds to finance the buyback. This can impact future dividend payments.

Advantages and Disadvantages of Share Buybacks

Advantages:

• Improved financial ratios
• Increased share price
• Rewarding shareholders
• Returning excess capital

Disadvantages:

• Potential for overvaluation
• Missed investment opportunities
• Short-term price gains
• Increased leverage

Key Considerations

Before deciding to proceed with a share buyback, companies should carefully consider:

• Financial Position: The company should have a strong financial position to support the buyback.
• Shareholder Sentiment: Shareholder approval is crucial for a successful buyback.
• Alternative Uses of Capital: Consider other investment opportunities or ways to return value to shareholders.
• Legal and Regulatory Requirements: Ensure compliance with all applicable laws and regulations.

Conclusion

Share buybacks can be a strategic tool for companies, but they should be carefully considered and executed. By understanding the procedure, costs, and potential benefits and drawbacks, companies can make informed decisions about whether a share buyback is the right move for their business.

Contact us at askdelom@delom.com.sg for any further assistance and guidance

#delom #share buyback #Singapore #company #corporation #stock #equity #finance #investment #business #private company #public company #off-market purchase #selective off-market purchase #contingent purchase contract #treasury shares #cancellation #stamp duty #funding #shareholder approval #ACRA (Accounting and Corporate Regulatory Authority) #BizFile+ #corporate governance #financial reporting #dividend policy #capital structure #mergers and acquisitions