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The number of listed companies that purchased their own shares jumped 64 percent in 2020, hitting an eight-year high. This came due to a plunge of stock prices amid the COVID-19 pandemic, coupled with government measures that eased related requirements.
Whether the bought shares will be retired, retained or put back in the market remains to be seen, as retail stock holders might not see the assumed effect of raising stock value materialize.
This is highly possible given only about one in ten firms retired stock in 2020, meaning the shares purchased can be released in the market for their own profit at the expense of retail investors with a small number of shares.
Stock buyback is executed by firms to reduce the number of outstanding shares on the market, which in turn increases the ownership stake of the stakeholders. A company might repurchase shares because it believes the market has discounted its shares too steeply, to invest in itself, or to improve its financial ratios.
Data from the Korea Exchange (KRX) showed a total of 516 listed companies in the KOSPI and KOSDAQ reported share buybacks as of Dec. 24, up 63.8 percent from 315 in 2019. The figure well exceeded the previous high of 356 companies in 2018.
The amount bought stood at 5.93 trillion won ($5.37 billion), up 32 percent from last year’s 4.49 trillion won, but lower than the 6.86 trillion won in 2018.
Some 195 KOSPI-listed companies and 321 Kosdaq companies acquired their own shares, valued at 4.92 trillion won and 1.12 trillion won, respectively.
The large-scale repurchase took place in February and March when the stock market took a nosedive, a period considered an opportunity for many firms that had long intended to bolster sagging prices amid a lack of upward momentum. They sought to secure the largest possible amount of shares against future uncertainties brought on by market volatility.
About a quarter of repurchase of listed firms were made between February and March, amounting to 540.6 billion won. March’s figure of 978.1 billion won was a record-high followed by 540.6 billion won in February.
Also driving the move was the 6-month extension of the limit on the maximum share purchase in March, a measure that has been extended for another six months until March 15, 2021.
Only 42 KOSPI- and Kosdaq-listed firms announced their plans this year to retire their repurchased shares, only 10 percent of the total. They will retire a combined 1.17 trillion won worth of shares.
“The return to shareholders will be determined largely by how long they are held by the firms and whether they will be retired, a reason why continued monitoring is required to follow up on their action in the months to come,” an industry official said.
Source: korea times