Before the regional economic crisis, the notion of shares buyback hasn’t been a very popular concept at all among the Malaysian Corporation. However, since the slump of the stock market which has deteriorated the company’s shares, certain companies in order to avoid volatility of their shares, has proposed for a ‘share buy back’ and has seek SE consent for such move.
Share buy back will allow the corporations to utilize their existing cash flows to buy back existing shares floating in the open market. It requires shareholders approval for such steps to be taken.
Certain investors may be of the opinion that share buy back will not maximize the cash flow of the companies which can be better utilized by acquiring new businesses then to follow the share buy back option. Such move may reduce the EPS (earning per share) of the companies as excess cash may not have been properly utilized.
On the other hand, it can also be viewed that share buy back shows the soundness of the company as it has ‘excess’ cash to invest into its own shares. It is important to note that purchasing his own shares can also generate ‘profits’ via ‘dividends’ issued back to the companies. The companies can after share buy back, proposed for a high dividend to its ‘shareholders’ and the company will indirectly benefit from it and it is important to note that declaration of dividend has numerous tax advantages. Section 108 of the Income Tax Act.
