Bank Alfalah Limited (BAFL) has announced that it will buy back 200 million shares from the Pakistan Stock Exchange (PSX) between December and June at prevailing market prices with the objectives of promoting share value and providing opportunity to members to sell shareholdings “fully or partially”.
The announcement jacked up its share price immediately on Thursday. The price increased by the maximum allowed limit of 7.5% in a day (or spiked by Rs2.39) to close at Rs24.26 with trading in 21.32 million shares at the bourse.
Giving justification for the purchase and its impact on the financial position, BAFL Secretary Muhammad Akram Sawleh said in a notification to the bourse that the board of directors had recommended the buyback “as the same will have a positive effect on the break-up value of the bank’s share, return on equity and its earnings per share”.
“It will also provide an opportunity of exit to those members who wish to liquidate their investments, fully or partially,” he observed, adding that the purpose of the purchase “is cancellation of shares (200 million, which is equal to 11.25% of its paid up capital)”.
The cancellation would reduce the number of issued shares and would “no more be available for sale in future”, Topline Securities CEO Mohammad Soahil said while talking to The Express Tribune.
Buyback laws also allow the owners to purchase their company’s shares from the market and sell them again in future. Many companies around the world opt for this option when their share prices stand low and sell them again, when their price go up in the market. In this case, however, the shares are not cancelled.
The bank has decided to buy back up to 200 million ordinary shares, constituting approximately 11.25% of the current issued and paid-up share capital of the bank.
“The shares shall be purchased from time to time at spot/ current price acceptable to the bank prevailing during the purchase period…from December 14, 2022 to June 2, 2023, or till such date that the purchase is complete, whichever is earlier,” the notification read.
“The buyback will be made from the distributable profits of the bank….through Pakistan Stock Exchange.”
The board of directors has decided to convene an Extraordinary General Meeting (EOGM) of shareholders on December 6, 2022 in Karachi to seek the members’ approval (pursuant to by way of passing of special resolution) for the proposed purchase/ buyback of shares.
At a meeting held on Thursday, the board approved and decided to recommend to the members of the bank to give their nod for the buyback scheme by passing a special resolution.
Sohail said on his Twitter handle that it “is one of the largest buybacks announced so far in Pakistan. Such buybacks will help in efficient price discovery in a market that trades at PE (price-to-earnings ratio) of 3x.”
“This is the fifth buyback announced at the PSX in 2022 after Netsol, Maple Leaf Cement, Lucky Cement and JDW Sugar,” he said. “Easing of buyback regulations and attractive valuations have led to the increase in shares buyback.”
The bank’s net profit surged 34% to Rs14.09 billion in the third quarter ended September 30, 2022 compared to earnings of Rs10.48 billion in the same quarter of last year.
Its deposits stood at Rs1.385 trillion at the end of September 2022 with year-on-year growth of 33.7%, the bank reported.
Published in The Express Tribune, November 11th, 2022.
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