STOCK
Treasury stock
Treasury stock is a financial instrument, a tool for liquidity management at the time when
the company’s share price is below its fundamental value while its retained earnings and
financial liquidity are high and the company has no need for fund raising during that period
when treasury stock is being acquired.
Shares repurchase methods
1
Repurchase via the main board: The repurchase price must
not be over 115 percent of the average closing price of the
previous five trading days. (Under this method, shares
repurchased must not be over 10 percent of paid-up capital.)
2
Repurchase via a general offer (GO); this is more flexible in
terms of offering price and quantity, as market prices are
not under the firm’s control. Using general offer method,
the company can set up the repurchase project size more
or less than 10 percent of the paid-up capital.
Qualifications checklist
1
2
3
The company has positive retained
earnings: Share repurchasing can be
conducted by less than the amount
of total retained earnings. Part of
the firm’s retained earnings should
be allocated as a reserve equivalent
to the amount paid for share
repurchasing. The reserve should be
maintained until all repurchased shares
are resold, or the company reduces
capital by reducing shares unsold, as
the case may be.
The company has excess liquidity, so
that over the next six months, the
company is able to repurchase shares
without any impact on its debt servicing
ability.
The company’s free float shares are
equal to or higher than SET require
ments: That is, the free float shares
are not less than 15 percent of paidup capital and 150 retail shareholders.
The company must disclose their treasury stock program at
least 14 days prior to implementation. If the program is
processed via SET’s main board, it must be completed within
six months. If the program is processed via general offer, it
must be conducted for at least 10 days and not over 20 days.
Share resale methods
1
Resale via the main board: The resale price must not be
lower than 85 percent of the average closing price of the
previous five trading days.
2
Resale via a public offering (PO): This method requires the
approval from the Securities and Exchange Commission
(SEC).
The company must disclose the company board resolution at
least 14 days prior to the resale.
Benefits of treasury stock
For the
Company
For
Shareholders
—
—
—
—
Adds demand for the company’s shares, which could boost the company share price.
—
Boosts earnings per share and return on equity (ROE). After the listed company repurchases shares,
its number of free float shares will decline. The repurchased shares will not be counted in earnings
per share calculation.
—
Boosts dividends per share because repurchased shares are not included in dividend per share
Reduces the number of free float shares, consequently increasing earnings per share.
Can be a financial instrument in giving returns to shareholders by effective financial liquidity.
Generates capital gain for the company. If the company’s management is confident of future
performance and believes that the company’s share price is significantly lower than its
fundamental value, share resale in a proper time will generate profitable returns.
calculation.
—
The higher earnings per share may accordingly boost share prices at the current price-to-earnings
ratio (P/E).
Issues for consideration / FAQ
Does a treasury stock program require share
holders’ meeting resolution?
Yes, share repurchase program needs the approval
from shareholders. However, the company
which has indicated in the company’s articles of
association can start the repurchase program by
using only board resolution. The program approved
by board must not exceed 10% of paid-up capital. As
such, it is more flexible to specify or make adjustment
in articles of association beforehand.
If the company needs to repeat the treasury
stock program, what should they do?
The company can repeat the program one
year after the end of the previous program.
If several treasury stock programs implemented
one after another, how can the accumulated
amount of repurchased share be calculated?
The total number of share repurchased from
different programs should be combined in
carrying out calculations.
When must the company avoid share
repurchases?
Repurchasing/resale limitations include:
1 Cannot be done when the company is disclosing
information that is sensitive to price movement or
may impact its share price or shareholder benefits,
e.g., before disclosure of financial statements, before
paying dividends, being taken over or when there are
facts showing that the company is going to be taken
over.
2
3
Cannot be conducted with connected persons.
Cannot be sent through Big Lot. (Currently,
Big Lot method is now called Trade Report)
If the company is undergoing a treasury stock
program, can it increase capital?
The company has to ensure that it does not
need a capital increase while it is conducting
the treasury stock project, as regulations do not allow
a capital increase during that time; the firm must
resell all repurchased shares before a new capital
increase.
Additionally, the program may reduce stock
trading liquidity in the stock market, decreasing free
float shares.
Key procedures
Seek shareholders’ resolution approved
(unless the company’s article of association
specify that share repurchasing can be done
using a board resolution alone, and the
repurchase is ≤10% of paid-up capital)
The company discloses
treasury stock program.
Disclose board resolution to SET
within the date of resolution, or
before 9:00 am. of the next
business day.
Disclose at least 14 days before actual
repurchase.
Not exceeding 10%
Exceeding / Not Exceeding 10%
Repurchase from SET’s
main board
General offering (GO)
Company submits
repurchase offer to
shareholders and SET.
Repurchase price ≤ 115%
of average closing price of previous
5 trading days
≥ 10 days
Treasury stock report
— If repurchase via SET: within
Repurchasing period
Repurchase
commencement date
9:00 am. of the business day
following share repurchase/
resale date
— If via GO: within 5 business days
from repurchase/ resale date
— Via SET main board: ≤ 6 months
— Via GO: ≥10 days but ≤ 20 days
The end of shares
repurchasing
(the last date of
repurchasing period)
The firm can start the new treasury stock
program again after 1 year after the end
of the latest program.
Board of directors
resolves to resell
repurchased stocks
After 6 months
Disclose board resolution at least 14 days
Within 3 years
before resale of repurchased shares
Share resale
commencement date
Resell via Public
Offering with
SEC approval
Resell on SET
main board
Resale price ≥ 85 %
of average closing price
of previous 5 trading days
Disclosure the resolution to
SET within the resolution date or
9:00 am. of the next business day
The date that all shares are
resold / End of resale period
Sold out
Not sold out
The company reports capital
reduction + reduces the
unsold repurchased shares.
≤ 14 days
Register changed registered capital with
Ministry of Commerce (MOC)
≤ 7 days following registering
capital reduction at MOC
Disclose capital reduction registration
to SET
Program completed
Issues for consideration / FAQ (continued)
How can we manage capital gains from treasury stock
programs?
How do companies usually conduct
treasury stock programs?
Capital gains from treasury stock cannot be booked in
the income statement. However, a surplus between
the share resale and repurchase values will be added
to shareholders’ equity as a surplus in repurchase, while a
deficit between these two values will be deducted from
retained earnings
During 2001-2013, listed companies
generally conducted treasury stock
programs through SET’s main board, where
transaction flexibility is high.
“We conducted our treasury stock program while we had a high
amount of cash and retained earnings, but this value was not
reflected in our stock price. We studied several alternatives and
finally chose a treasury stock program to add value over time and reduce excessive liquidity.
When the program ended, our stock price rose, while retail shareholders were pleased about
the outcome.”
Anant Kaewruamvongs
Chief Executive Officer and Managing Director
CS Loxinfo PCL
“Our company decided to carry out a treasury stock program in 2008 while the
economy was suffering from the economic crisis. At that time, the SET index
was on a downward trend. Our business was doing fine but our stock price did not
reflect the company’s actual value, with a price to book value of 0.69x, while the
average price to book value of SET was 1.5x. The company wanted our stock to
reflect its fundamental value and sought to restore investor confidence by choosing this
financial tool. As a result, the company’s share price increased close to SET’s average price.
About three years later, our shares were resold at higher prices than our repurchasing cost,
generating higher returns for all shareholders.”
Viriya Ampornapakul
President
Pacific Pipe PCL
Related laws/regulations
—• Public Limited Companies Act (B.E. 2535) and ministerial regulations, 2001
— Notification of the Board of Governors of The Stock Exchange of Thailand,
No. Bor.Jor./Por.11-04 Re: Disclosure of Information and Other Acts of a Listed
Company Repurchase Their Own Shares and Disposes of Such Repurchased Shares, 2001.
62 The Stock Exchange of Thailand Building Ratchadapisek road, Klongtoey, Bangkok 10110
2014, January