CT Holdings PLC and its subsidiary Cargills (Ceylon) PLC have announced plans for share buy backs on a pro-rata basis up to a maximum of 5 percent within one year, subject to shareholder and regulatory approval.
The two firms in separate filings to the Colombo Stock Exchagne (CSE) on Friday revealed the resolutions to this effect, which were passed by the respective boards of directors on Thursday, and the two firms were expected to call for EGMs seeking shareholder approvals.
The boards of Cargills and CT Holdings justified the move by noting that the current share prices do not reflect the real value of the companies and growth prospects of underlying businesses, and hence said that it presents an opportunity to repurchase their own shares. Cargills was last traded at Rs. 182, up from Rs.172.00 at the end of march quarter and CT Holdings was last traded at Rs.143.00 down from Rs 168.10 at the end of last year.
Although share buy back programmes could potentially look attractive to investors and lead to an increase in stock prices, the balance sheets of two firms do not indicate the availability of excess reserves to fund the scheme.
In addition, IFC recently decided to pull out from an investment made in Cargills Food Processing Company (Pvt.) Ltd (CFC), a subsidiary of Cargills (Ceylon) PLC (CCP) by enforcing a ‘put’ option. The put liability was valued at Rs.3.7 billion as at March 31, 2020.
The two companies also did not announce definitive prices for the shares under the programme.
“The repurchase of shares will be executed solely at the discretion of the boards of directors at an appropriate time within the mentioned time frame at a share price that is fair and reasonable,” the companies said.
Further, the two firms said the continued recovery of business in first two quarter of FY21 would be considered prior to proceeding in the current post-COVID environment, while viewing the current share price as being conducive to effect the repurchase.