An open letter to the SET.
An open letter to the SET.
An open letter to the SET on what we firmly belive would rejuvenate the best Thai stock values on the local exchange.
E-mailed and send Via Registered Mail, EMS.
Ms. Patareeya Benjapolchai , Senior Vice President
The Stock Exchange of Thailand.
62 Ratchadapisek Road, Klongtoey,
Bangkok 10110 THAILAND
Dear Khun Patareeya Benjapolchai,
I thank Ms. Ladawan for kindly forwarding us your e-mail address and hence send her a copy of the below.
We have noted with *much interest* your recent positive comments on the issue of Treasury stock in the Thai, Krungthep Turakij news paper.As a professional in the investment business from USA but living here, since 1989, I must confess to for long have been puzzled on this seemingly "heavy" restriction where SET firms cannot buy back their own shares.
I thank you for your patience & attention and perhaps tolerance in expressing our views on this. (As reference to this important topic, kindly view our current opening page at: www.thaistocks.com)
As we state at our current opening web page on this topic: "Following the days of the 1987 sudden US stock market meltdown, many hundreds of US companies daily and in bold ways, announced various share buy back plans. "At current levels our stock is undervalued and we feel our own shares are the best current investment...’such where then the many worded news releases. In my opinion and I was there at the time, this practice is what in late 1987 saved the US market from collapsing".
For many years now our investment thesis to foreign SET investors has been, to own mostly shares in the many attractive and undervalued secondary "value shares" on the SET. We have well documented at our web site that in fact, this group has -and by a handsome margin, again and again beaten the SET index since 1997. Yet many of these shares remain horribly undervalued despite this.
In our opinion, if this law was changed and companies could in fact repurchase some of their shares outstanding, a significant change of perception would rejuvenate the local exchange.
Listed firms which would announce such buy backs would get fast investor and press attention. As it would now signify a sort of "floor" to the current low stock price. And whom would not like to buy a good stock which now has some bottom in place?
It would also attract attention of traders and speculators, as they would want to guess which firm has the cash and might so be disposed to announce "a share buy" back.
The overall theme of the SET market could easily then change in that, values are now what both investors and speculators are after; not just pure liquidity and a good stock graph.
Let there be no question and this I am sure of, a share buy back announcement would be viewed positively and so the market price would easily move up on that day -and beyond. This even while the company has not bought back any shares yet.
Knowing the workings well of the medium and smaller cap. SET sector, we also believe with certainty that even a small amount of capital would quickly increase the share price and hence its liquidity. How many times in the past have we heard, "the only reason this SET stock price is so cheap is because there is no liquidity". Hence, it would not take much at all, to re-value correctly dozens and dozens of profitable smaller cap. shares because even the slightest spark in demand would fuel them much higher in market price.
It is for this reason we believe, that while SET firms buying back some of their own shares would reduce the outstanding float, it is also true that because of the now much higher market price, total capitalization amount would actually increase. Hence it is a double benefit.
In any event and not withstanding the above, to restrict any company from never being able to buy back it's own shares is just not fair. Can you imagine as just one example, being in a business where one of the minority partners wants to sell out at a very cheap price but the majority owner and in fact the company itself, is not allowed to buy back their shares even when it knows best how an irresistible value it represents?
I fully understand the need to restrict trading in the company shares or using this in a way which is not fair to other minority shareholders.
Still, "treasury stock", is very identifiable and so can easily be monitored. For example a waiting time can be impose. Of course, we much realize here your expertise and regulatory framework is of highest importance.
Most of all, and we boldly predict: the companies who pursue share buy- backs will one day own and then post huge unrealized profits, just like not long ago the recession and Baht devaluation, created large unrealized FX losses in '97and '98.
With Highest Respects,
Paul A. Renaud.
Managing Director
