Recently, the list of businesses that expect to buy treasure stocks is getting longer, with 20 businesses looking for the sales of this kind of stock. Many well-known businesses such as Gemadept (GMD), Vicostone (VCS), Gelex (GEX), GTNfoods (GTN), Dat Phuong (DPG), PAN Group (PAN), PVI, TPBank (TPB), Hoa Binh Group (HBC), Dabaco (DBC), etc. have all planned to register for purchasing treasury stocks.
It seems that enterprises are determining to buy treasury stocks as they are rushing to finish the procedures. According to statistics, if calculating around the current price range, enterprises have planned to spend around 3,800 – 4,000 billion VND to purchase treasury stocks.
Looking at the past, investors would not be able to forget the highly profitable deals achieved via treasury stocks of Techcombank in 2018. Techcombank spent more than 4,000 billion VND to purchase more than 172 million shares of the biggest shareholders of HSBC, turning them into treasury stocks.
More than 1 year later, Techcombank sold that amount of stocks twice, and due to the fact that the value of Techcombank at that moment was at a high level, they gained a capital surplus of more than 12,000 billion VND. Another example of this is the case of the Petrolimex - Vietnam National Petroleum Group.
In September 2016, this enterprise has purchased more than 155 million VND of treasury stocks with the price of 10,600 VND/share, most of which are redeemable preference shares issued to employees. Listed on the exchange in April 2017, the PLX stocks attracted a large number of investors, raising its price to approximately 60,000 VND/share.
In the end, PLX sold 20 million VND of treasury stocks. Without much calculation, investors could still imagine the amount of profits PLX received by purchasing treasury stocks as there is a 6 times difference between the selling and purchasing prices.
Last October, ACB also sold 35,2 million USD of treasury bonds. The trading price was 23,800 VND/share, while the purchasing price was only 16,000 VND/share.
Accordingly, ACB gained 838 billion VND of trade surplus. In the history of the Vietnamese stock exchange, there have been plenty of cases in which enterprises earned high profits by purchasing treasury stocks. The abovementioned cases are some of those that have high numbers of stocks traded and a large amount of money.
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Legendary investor Warren Buffett especially likes companies that purchase stocks as his investment strategy is long-term with the holding period lasts up to dozens of years.
In fact, the differences that appear when purchasing treasury stocks will be included in the equity surplus on the Balance Sheet instead of in the profit on the income statement of the enterprise. However, the benefits of repurchasing treasury stocks are numerous.
In particular, in the events that cause the stock value to be much lower than the true value of the business, the repurchase of treasury stocks will likely create double benefits. The most obvious benefit is that every event will end no matter how bad it is. If the business is still doing business normally and suddenly the value of the stock drops by 25%, 30%, 50%, or even more then it is clear that the market does not reflect the value of the business.
With the available amount of idle money, businesses can buy in to prove that the market is mispricing. When the market is stable and there are more suitable valuations, businesses could sell stocks and increase the surplus value for themselves and shareholders, like in the cases of Techcombank, Petrolimex, and ACB, etc. As for investors, the act of buying treasury stocks now will be like throwing a lifebuoy to investors.
When the selling force is constant and the stock does not stop falling, the demand from treasury shares will help the "supply-demand" ratio be more stable, and the stock price may soon stop falling. In terms of the general market, the money used to buy treasury shares is the "real fresh money" and the "new money" pumped from the outside into the stock market. This new cash flow will help the market balance the supply-demand ratio better.
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