Tightrope for shares

Published: Tuesday August 18, 2008

PUBLIC COMPANIES in Barbados can re-purchase their shares from exiting shareholders to stimulate trading but they will be walking a tightrope – reducing their share numbers and upping the value of earnings per share (EPS).

This assessment from Barbados Association of Corporate Shareholders president Douglas Skeete came last week as he commented on the slow trading on the Barbados Stock Exchange (BSE).

He pointed to countries like the United States where companies buy back shares and hold them in treasury for resale to the public when there is greater demand for them.

"But in Barbados our Companies Act does not allow you to buy back shares and then sell them. When you buy back shares, you have to cancel them. It means that you are left with less shares trading in that company.

"You would have to issue new shares and that would mean going back to the Barbados Stock Exchange with a prospectus," Skeete explained.

On the other hand, a lower volume of shares in a company boosts its EPS value, the chartered accountant pointed out.

Skeete noted that especially when there is little or no activity or when market prices were dropping, this is a strategy that companies use.

However, the company must have the liquidity to complete the transaction and bear in mind that while it could stimulate interest in the share, because buying back at a higher price increases the share price, when the price goes up it is not going to attract buyers.

He said that he would recommend the repurchase of shares to increase trading activity but "I'm not sure that it is something that appeals to a lot of companies in Barbados".


Source: Nation Newspapers
http://www.nationnews.com/story/292426553982827.php