Share Buyback on Bursa: Treasury Shares Explained
The short answer
A share buyback is when a listed company purchases its own shares. Under the Companies Act 2016, the company must be authorised by its constitution, be solvent, buy through the stock exchange and act in good faith [1]. The directors may then cancel the shares or keep them as treasury shares [1]. Bursa’s rules cap total holdings at 10% of issued shares [2].
What is a share buyback?
A share buyback, also called a share repurchase, is the reacquisition by a company of its own shares [4]. Fewer shares remain in the hands of outsiders, so each remaining share represents a bigger slice of the business.
In Malaysia the Companies Act 2016 sets the conditions [1]. A company whose shares are quoted on a stock exchange may buy its own shares if its constitution allows it [1]. It must be solvent at the date of the purchase, make the purchase through the exchange in line with the exchange’s rules, and act in good faith and in the company’s interests [1].
Shareholder approval is part of the picture. Under Chapter 12 of Bursa’s Main Market Listing Requirements (text as at 13 August 2020), a listed corporation must not buy its own shares unless shareholders have authorised the directors by ordinary resolution at a general meeting [2]. That authority lasts only until the end of the next annual general meeting, unless renewed, or until the date by which that meeting must be held, or until it is revoked, whichever comes first [2]. A buyback is therefore a permission to buy, not a promise to buy. A company can hold a mandate and never use it.
What are treasury shares?
Treasury shares are bought-back shares that the company keeps, instead of cancelling, in a securities account [1]. The Act lets the directors cancel the purchased shares, retain them as treasury shares, or do some of each [1]. Shares that are not held in treasury are deemed cancelled immediately on purchase [1].
While shares sit in treasury, they carry no rights. The Act says treasury shares confer no right to attend or vote at meetings and no right to receive dividends or other distributions [1]. They are also left out when calculating the number or percentage of shares for matters such as substantial shareholding, takeovers and quorum [1].
If the directors later use them as share dividends, the original cost reduces the funds otherwise available for dividends [1]. If the directors cancel them, the cost reduces the company’s available profits [1]. Either way, the cash has left the business.
Why do some companies distribute treasury shares as a share dividend?
They do it because the Act allows directors to hand treasury shares to shareholders as a dividend, known as a “share dividend” [1]. It lets a company reward holders with shares it already owns, without issuing new ones.
Treasury shares can be used in other ways too. The Act lists resale in line with the exchange’s rules, transfer under an employees’ share scheme, transfer as purchase consideration, or cancellation [1].
Compare the options:
| Use of treasury shares | What changes for shareholders |
|---|---|
| Cancel | Share count falls permanently |
| Resell in the market | Share count outstanding rises again |
| Distribute as share dividend | Holders receive shares instead of cash |
| Employee share scheme | Shares move to staff, which can dilute holders |
A share dividend is not the same as a bonus issue. It uses shares the company bought earlier, so the cost shows up in the cash spent on the buyback, and the cost is applied against funds otherwise available for dividends [1].
How does a buyback affect EPS and ROE?
A buyback can raise earnings per share, because the same profit is divided over fewer shares [5]. It can also raise return on equity, because cash spent lowers shareholders’ equity while profit is unchanged. Neither improvement means the business itself has grown.
Hypothetical illustration for Company A, assuming profit is unchanged, ignoring any lost interest on the cash used, and assuming the shares are cancelled:
| Company A measure | Before | After |
|---|---|---|
| Company A: shares in issue | 100 million | 95 million |
| Company A: profit | RM20 million | RM20 million |
| Company A: EPS | 20.0 sen | 21.1 sen |
| Company A: equity | RM100 million | RM92.5 million |
| Company A: ROE | 20.0% | 21.6% |
In this example, Company A buys 5 million shares at an assumed RM1.50, spending RM7.5 million. The EPS and ROE rise purely through arithmetic.
Use this carefully. The same cash could have repaid debt or funded growth, and if shares are bought at a high price the value delivered to remaining holders is lower. A buyback paid for by borrowing also changes the risk profile. Check the cash flow statement and free cash flow to see whether the spending came from surplus cash or stretched the balance sheet.
Nothing here suggests a buyback lifts or supports the share price. Whether it creates value depends on the price paid compared with what the business is worth.
What limits does Bursa set on a buyback?
Chapter 12 of the Main Market Listing Requirements sets several hard limits, shown here as they stood in the text dated 13 August 2020 [2].
| Rule | What the chapter says |
|---|---|
| Size cap | Purchased plus treasury shares may not exceed 10% of issued shares [2] |
| Funding | Purchases must come wholly from retained profits; borrowings may be used if backed by equal retained profits [2] |
| Purchase price | Not more than 15% above the 5-day weighted average market price [2] |
| Resale price | At or above that average, or up to 5% below after 30 days and not below cost [2] |
Listing Requirements are amended from time to time, so confirm the version in force on Bursa’s website before relying on these figures.
Where are buyback transactions announced?
They are announced to Bursa, and they appear in its Company Announcements section [3]. A listed corporation must announce any purchase immediately, and no later than 6.30 p.m. on the day, with details including the date, number of shares, price paid, total consideration and shares kept in treasury [2]. The Act also requires the company to lodge a notice of the purchase with the Registrar and the stock exchange within fourteen days [1].
When you review a buyback programme, read three things:
- The mandate: the maximum the shareholders approved.
- The pace: whether the company buys steadily or in bursts.
- The use: whether the shares are cancelled, held or redistributed.
Then compare the activity with free cash flow. A company spending more on buybacks than it generates deserves a closer look at how the gap is funded.
Frequently asked questions
Is a share buyback good for shareholders?
It depends on the price paid and how the cash would otherwise have been used. It raises per-share figures mechanically [5], but it does not guarantee a better business.
Do treasury shares receive dividends?
No. Under the Companies Act 2016, treasury shares carry no right to attend or vote and no right to receive dividends or other distributions [1].
Can a company resell treasury shares?
Yes, in accordance with the relevant rules of the stock exchange [1].
Sources
- Companies Commission of Malaysia (SSM) — Companies Act 2016 (Act 777) updated text as at 1 August 2022, section 127 on purchase of own shares, treasury shares, cancellation, notice within fourteen days
- Bursa Malaysia — Main Market Listing Requirements Chapter 12 Share Buy-Backs, as at 13 August 2020: authorisation, 10% limit, retained profits, price limits, announcements
- Bursa Malaysia — Company Announcements page where listed companies’ filings are published
- Wikipedia — share repurchase as the reacquisition by a company of its own shares
- Wikipedia — repurchases and earnings per share when fewer shares are outstanding
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