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Jakarta Post

Listed companies to buy back shares as market rout continues

  • Riska Rahman

    The Jakarta Post

Jakarta   /   Wed, March 18, 2020   /   08:05 pm
Listed companies to buy back shares as market rout continues The Indonesia Stock Exchange (IDX) logo appears in front of a screen displaying stock prices in the IDX building in Jakarta on Friday. (JP/Seto Wardhana)

Thirty-two companies listed on the Indonesia Stock Exchange (IDX) have announced plans to buy back shares to halt a plunge in prices amid growing concerns about the wider economic impact of the novel coronavirus pandemic.

The plan was first announced by PT Fast Food Indonesia, which manages the Kentucky Fried Chicken (KFC) chains in Indonesia, on March 11. The company said it would allocate about Rp 10 billion (US$66,666) for the buyback of up to 200 million shares from the public from March 12 to June 11.

“The buyback will not cause a decline in revenue or an increase in costs as we will use internal funds sourced from our own operational activities,” the company said, adding that the buyback would not affect the company’s profit projection for the year.

Several other listed companies have also followed suit. Bread producer PT Nippon Indosari Corpindo and retail firm PT Ramayana Lestari Sentosa will also repurchase their shares, in addition to several state-owned companies such as Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI), which had unveiled their buyback plan earlier, following the announcement of the new share buyback policy by the Financial Services Authority (OJK) on March 10.

The new rule allows listed companies to repurchase their shares without a prior shareholders’ meeting in an effort to ease market volatility. The companies are allowed to buy back 20 percent of their paid-up capital and are also required to maintain free-float shares at 7.5 percent.

“This is an effort to stimulate the economy and reduce the impact of the significantly fluctuating market,” the OJK said in a statement on March 9.

Read also: SOEs set aside up to Rp 8 trillion to buy back shares amid falling prices

Of the 32 companies, BRI announced the biggest buyback, allocating Rp 3.8 trillion for the repurchase of shares. Diversified petrochemical giant PT Barito Pacific allocated Rp 1 trillion to repurchase its shares.

OJK deputy commissioner for capital market monitoring Fakhri Hilmi said on March 12 that the new rule was intended to expedite the buyback process amid the run on the Jakarta Composite Index (JCI), which had caused it to lose about 30 percent of its value since the beginning of the year. 

The largest fall in the index occurred last week after the World Health Organization (WHO) declared COVID-19 a pandemic. The sharp fall in oil prices early last week further worsened the global economic outlook, triggering massive withdrawals from stock markets around the world.

The rout continued on the IDX, with the JCI losing another 3.35 percent just before the close of trading on Wednesday.

“The buyback can also give a signal to investors that the companies’ fundamentals are all right, so it can restore their confidence in the stock market,” Fakhri said during a press briefing in Padang, West Sumatra.

Read also: To buy it or not: Retail investors are torn amid volatile stock market

When asked if the buyback would be effective enough, he said he was not sure, given immense pressure on the global markets as a result of the COVID-19 pandemic, which had caused concern about the possibility of a global recession among market players.

Jasa Utama Capital analyst Chris Apriliony told The Jakarta Post that the buyback would only help the companies prevent share prices from plummeting further amid intense selling pressure in the market. 

Koneksi Kapital analyst Alfred Nainggolan said the measure would not catapult the companies’ share prices as the impact of COVID-19 would be great and could hurt Indonesia severely.

 “Buybacks can only have a positive impact on share prices in the short term. So despite the fact that the companies will carry out the buyback over the course of three months, the positive sentiment it brings will not last for long,” Alfred explained over the phone.

For this reason, as well as the fact that market players were scrambling for safety from a possible global recession, he suggested that both traders and investors put off buying more stocks for the time being until the coronavirus pandemic started showing signs of improvement. “For now, cash is king,” he said.

The coronavirus, which can cause a pneumonia-like illness, had been identified in 227 people in Indonesia as of Wednesday and has killed 19. Globally, the infections have topped 185,000, and as of Monday, more than 7,300 people had died.