Singapore's big banks are on a buying spree as share buybacks hit $116.5m

DBS led the pack after buying 2.95 million stocks bought for $74.79m.

Buybacks in Singapore Exchange (SGX) breached the $100m threshold with figures skyrocketiing to $116.5m as of mid-August. The staggering figure is more than double of the $59.7m buyback record last year and big banks are leading the charge.

DBS bought 2.95 million stocks for $74.79m, followed by UOB, which bought back 584,000 shares for $15.97m. Meanwhile, OCBC 300,000 of its own shares for $3.57m.

The trend could suggest a reflective of valuation of individual stocks, balance sheet management by listed companies, a component of capital return policy and a part of stock compensation process of senior management, according to Jefferies equity analyst Krishna Guha.

The buyback spree happening in Singapore can also be observed in other markets such as the United States, according to Natixis chief economist for the Asia and Pacific Alicia Garcia-Herrero and INSEAD finance professor Theo Vermaelen.

“It basically means that companies prefer to reduce their future cost of capital by buying back shares now,” Garcia-Herrero explained. “In other words, companies expect the future situation to be worse in terms of cost of capital so better to reduce such needs.”

Guha believes that the buyback trend is good news for the local bourse, at least in the short run, as current shareholders effectively increase the percentage of ownership.

“Banks, for example, are regulated to have minimum capital ratios,” Vermaelen explained. “Banks also are concerned about maximising return on equity.”

Aside from banks, SGX has also witnessed large buybacks from real estate firms. As of mid-August, CapitaLand purchased 3.4 million shares for $11.29m, whilst CDL  bought 500,000 shares for $4.78m in its inaugural buyback transaction. 

In July, developer Wing Tai Holdings also joined the shopping spree with 5.56 million shares brought back for $10.72m.

Another trend which Vermaelen mentioned is executives buying stocks which firms usually do to avoid “delusion” when stock prices are very high.

In July, Oxley deputy CEO and executive director Eric Low See Ching bought 2.5 million shares for $873,000 days after the government’s property cooling measures. His transaction was followed by the firm’s CEO and executive director Ching Chiat Kong who acquired 9.1m shares for $3.19m.

Vermaelen believes that buying back shares is a game that dwells on a 'good feeling about your valuation.' "Many companies repurchase shares before the stock market crash," he explained.

"And maybe in the long run your company will recover but sometimes the long-run never happens, it doesn't come soon enough." 

In Singapore, the buyback transactions hit its peak on March with deals totalling $222m.