A total of 21 companies listed on the Egyptian Exchange (EGX) have bought back outstanding stocks this month to support the performance of their shares. This comes in light of sharp EGX declines during the previous sessions due to coronavirus.
These companies include Palm Hills Developments, Eastern Company, Orascom Development Holding, GB Auto, Egypt Kuwait Holding, Raya Holding for Financial Investment, Electro Cable Egypt, and Arab Moltaqa Investments Company.
Companies have taken advantage of low prices to buy back outstanding stocks to compensate for losses suffered due to the effects of coronavirus on world markets. They have also benefitted from a Financial Regulatory Authority (FRA) decision loosening the rules for the share repurchase.
The FRA’s Board of Directors had earlier agreed to amend some Article 51 provisions regarding the listing and writing off of securities in the EGX dealing with treasury stocks. This also enables companies to bypass the notification period of three days, and instead buy back stocks on the day of notification.
The FRA said the decision comes as a result of recent events and developments on the global financial markets, and the sharp decline in Arab and foreign stock exchanges as a result of the coronavirus pandemic.
Amr Elalfy, head of the research department at Shuaa Securities, believes the current time is the most appropriate for repurchasing stocks. He highlighted that it supports share performance on the stock market and creates purchasing power. Elalfy added that repurchases enables companies to make strong capital gains in the medium term, or once the markets recover again.
Share buybacks, or treasury stocks, are frequently used by shareholding companies to recover part of their capital shares. Such a move, which may be in cash or in kind, can decrease the company’s assets or increase its liabilities, leading to a decrease in equity by the same amount.
Although the company’s ownership of its shares does not mean these shares have been cancelled or permanently recovered. Treasury shares can be held for resale at another time or for distribution to workers or shareholders. The company may have other purposes.
Companies can buy outstanding stocks in several ways, including buyback from the open market which companies are currently undertaking due to shares listed on the EGX being affected by coronavirus.
Other methods include repurchasing through limited bidding or purchase at a fixed price, for those who respond from the shareholders or from outside the market.