JDW Sugar Mills Limited (JDWS) has completed a share buyback of 2 million shares. The company made the announcement to the Pakistan Stock Exchange (PSX) on Monday.
The buyback was authorised through a special resolution passed by the Extraordinary General Meeting (EGM) of the company held on November 03, 2022. The buyback period was supposed to start from November 11, 2022 until May 02, 2023. However, no purchase was made until December 28th, the last week of the previous year.
The buyback was done hastily with just three transactions on three days not far from each other. The first purchase was on December 28, 2022 when it bought 600,000 shares. The second purchase took place only two days later on December 30th for 600,000. And then on Monday, the company bought back 800,000 shares and completed its buyback of 2 million shares.
During the day, JDWS share price touched a high of Rs. 440 but the day closed at Rs. 407, a decline of almost 7%. On December 28, when the first share buyback transaction happened the share price also hovered near Rs. 440 but continued to decline in the following week.
This share price decline goes contrary to the expectation where such buybacks are supposed to increase the value of the share. Even though the share price decline is unclear, it is possible that something similar to what happened with Bank Alfalah last week might be the case, when it completed its buyback.
In the case of Bank Alfalah, a significant shareholder of the bank, namely International Finance Corporation (IFC) which had almost 15% shareholding, was given a partial exit through the buyback. IFC sold its stake through the market which was then bought by the bank. This meant that the buyback did not create the value for the company’s share as it was initially expected to create.
2022: the year of share buybacks
In 2022, many major companies on the PSX announced share buybacks. The share prices of many profitable and established companies took a huge hit. This made their valuations attractive. But due to a lack of institutional and foreign investors in the market, the sponsors of these companies decided to take advantage of the decline in share prices and buy back their own companies’ shares.
It started with NETSOL in May (2 million), followed by Maple Leaf Cement (25 million), then Lucky Cement (10 million), JDW Sugar Mills (2 million), then BAFL (200 million), and finally ENGRO (70 million).
