Russian companies look to buy back their own shares
The Russian indices have lost 43% from the start of the year. But as foreign investors pull out – that's an opportunity for Russia's biggest companies. Their managers see share buy backs as the best investment opportunity.
Norilsk Nickel was the first to announce such a move, of $2 billion. Severstal was next, planning to buy back 2.8 percent of its shares over the next 6 months. Tim McCutcheon, Partner at DBM Capital Partners, says it reflects company management knowing about the value the company represents, and knowing it is undervalued on the market.
“The management of the company is the best placed to know what the true value of the company’s shares are, and if the market price is below that true value the management says lets buy up our own shares because it’s the best investment opportunity we have,”
Analysts expect Russian firms to spend another 17 billion dollars on a share buy backs in coming months. It's a show of manager's confidence in their company – and sends a positive signal to potential investors. Tom Mundy, Equity Strategist at Renaissance Capital, doubts that buy backs can do much to stop the sell off, but adds that it may work as part of a larger scale commitment to underpinning markets involving many companies and possibly the government.
“You need more than just a couple of companies to start stepping into the market. If you see enough of it on a big enough scale, and for example you also see the government coming in and doing the same thing, which a lot of people want to happen, and theres a lot of call for that from the stabilization funds, it could be one of a number catalysts that could be supportive for the market.”
Share buy backs echo the state's desire to stabilise the market. Analysts say the government has promised companies that if firms spend their money now to support the stock market, the government will ensure there is plentiful liquidity in the future.