To Prop up Share Prices
An increasing number of listed companies are conducting stock buyback in order to prop up their stock prices and regain investors’ trust after the outbreak of COVID-19.
NH Investment & Securities announced on May 5 that a total of 561 public notices were made on stock buyback for the first four months of this year whereas the number was 644 in 2019 as a whole. The number, which was 57 in January and 98 in February, hit an all-time high of 364 in March this year.
Last month, 42 listed companies made such notices. For example, POSCO is planning to repurchase stocks worth one trillion won for shareholder value enhancement and LG International’s upcoming buyback is estimated at 100 billion won. This year’s buyback volume is currently 1,919.4 billion won. For reference, the volume was 4,412.7 billion won in 2019.
A high stock buyback ratio or value is regarded as a positive signal in terms of fundamentals. This is because the maximum stock buyback stipulated in the Commercial Code is limited to the profit available for dividend as stock buyback could lead to a decline in corporate capital liquidity and a lower level of management stability.