SEC drafts rules on shares buyback of listed firms

The Securities and Exchange Commission (SEC) is drafting a new set of rules to cover acquisitions by listed companies of their own securities, part of the government’s efforts to safeguard the interest of minority shareholders.

Under the proposed rules, a buyback or repurchase by an issuer of its own securities shall only be made if such issuer has unrestricted earnings in its books to cover the amount of shares to be purchased.

The SEC said the purchase by a listed company of its own shares may be booked as an investment in marketable securities, especially when the purchase is for the purpose of meeting short-term obligations or for implementing a stock option or purchase plan.

Such treatment is consistent with the intent to re-sell the same shares within a two or three-year period, sufficient to stimulate stockmarket activity and allow a listed firm to realize a return on its investment, the SEC said.

The proposed rules also require an issuer or any of its affiliate which intends to acquire its own shares at threshold amounts to make a tender offer for the issuer’s shares at a price equal to what it intends to acquire.

The SEC said any share buy-back plan should be disclosed to the Philippine Stock Exchange (PSE) and the commission to ensure that investors are adequately protected. The disclosure should include the identity of the issuer or affiliate making the tender offer, the amount and class of securities being sought and the price being offered, and the purpose of the tender offer.

Some listed companies have embarked on an active buyback program to preserve the value of their shares affected by the financial crisis that hit businesses since 1997.

Another major objective of the buyback proposal is to signal that a listed company’s own shares represent the best investment available. The proposal is similar to a strategy adopted by the Hong Kong Stock Exchange 14 years ago in a bid to rejuvenate its shaky market.

At present, there is no law prohibiting companies from buying back their shares.

Existing PSE rules, however, require that at least 10 percent of a company’s total outstanding capital stock should be publicly held.