National Bank of Pakistan (NBP) has announced holding an emergent board meeting on September 12, 2008 to review a proposal to buy back the company's shares. This was stated in a KSE notice issued here on Monday. The share buy back process in Pakistan is governed by Section 95A of the Companies Ordinance, 1984 and the Companies (Buy-back of Shares) Rules, 1999.
According to these rules shares buy back is to be authorised by a special resolution which shall indicate the maximum number of shares to be purchased, the maximum price and the period within the period purchase is to be made, Farhan Rizvi, an analyst at JS Global Capital Limited said.
Moreover, the company intending to buy back shares is also required to have a debt to equity ratio of 75:25 and current ratio of 1:1. The shares purchased as a result shall not be resold and will be cancelled. In Pakistan, Jahangir Siddiqui and Company Limited, recently announced a share buy back of a maximum of 7 million shares at Rs 356.32, while Arif Habib Securities also carried out a buy back exercise in 2005.
Farhan said that buy backs are generally carried out at times of crisis in equity markets. For instance on Monday October 19, 1987 (also known as black Monday), stock prices in the US nose dived a massive 20 percent. The following day Citicorp approved a plan to repurchase $250 million of the company's stock and was followed by a number of other companies who followed suit.
As a result, over a 2-day period, firms announced a buy back plan worth a massive $6.2 billion, which helped to stem the slide in the stock prices. Given the prevailing market situation, any substantial buy back by NBP could be a good support tool for the market. Moreover, similar exercise by other companies could also lend strong support to equity markets.