Mubasher – Heba Al-Kurdi: In conjunction with the sharp declines witnessed by the Egyptian Stock Exchange during the previous sessions due to the pressures of the spread of Corona Virus, Egyptian companies are still heading to buy treasury shares to compensate for part of the losses suffered by the shares, taking advantage of financial supervision facilities in that regard.
Earlier, the Board of Directors of the Egyptian Financial Supervisory Authority agreed to amend some provisions of Article 51 of the rules for listing and writing off securities on the stock exchange dealing with treasury shares, provided that the amendment includes the possibility of implementation on the day of the notification without observing the period of advance notice that was scheduled for three days Work at least before the proposed implementation date.
The authority indicated that the decision comes in the context of recent events and developments that have occurred in the global financial markets and the sharp downturn witnessed by Arab and foreign stock exchanges, and in the interest of the General Authority for Financial Supervision to protect the Egyptian financial markets and protect the rights of dealers in them.
In light of companies scrambling to buy treasury shares, the most recent of which was Eastern Eastern Company, which today announced the purchase of 3% of the capital as treasury shares, what does treasury share mean?
Treasury stock operations means the company’s buy-back of its shares, and shares that are bought back by the company are called “treasury shares”.
For his part, said Michael Mamdouh Naguib, Director of Customer Relations at H Dubai Stock Exchange, that the decision has a positive impact and a good opportunity to reduce the losses of a number of investors.
Naguib pointed out that despite the positive decision, the effect is temporary and not sufficient to protect the decline in shares, pointing out that not all companies are able to purchase stock shares.
He added that buying shares requires a number of other decisions with him at the moment, foremost of which is the abolition of the stamp tax on trades and the reduction of gas prices for factories..
There are many cases where shareholding companies resort to redeeming part of their capital shares by buying them, and whether they are purchased in cash or in kind, this will of course lead to a reduction in the company’s assets or an increase in its liabilities, and in return a decrease in equity in the same amount.
It should be noted that the company’s ownership of its shares does not mean that these shares have been canceled or recovered permanently, but there are several areas for the uses of treasury shares that may be held for resale at another time or for distribution to employees or shareholders or the company may have other purposes.
The purchase of its shares by the issuing company is offset by a decrease in the equity, whereby the consideration is paid to one or more shareholders in exchange for the assignment of its shares. Thus, the purchase of treasury shares can be seen as a reduction in the shareholders ’equity and not a new asset for the company..
There are several ways to buy back the company for its shares, the most prominent of which are: (buy-back from the open market), which companies are doing at the present time to address the implications of Corona on the performance of the Egyptian stock market..
Also, the methods also include repurchasing through limited bidding, or buying at a fixed price for those who respond from the shareholders or from outside the market or an equal percentage of all shareholders.
At a time when there are multiple reasons for companies heading treasury shares, creating a market for the stock and creating additional demand for the stock and strengthening its current market price are the most prominent reasons for companies to buy in the current circumstances, as companies resort to that mechanism in the event of low share prices for reasons not related to the performance of the company itself.
For example, and not limited to (Giza Contracting, Universal and Egyptian Cables, Golden Coast El Sokhna, Raya Communications Services, Oden Investments, Arabia Investments, Egyptians Housing, Al-Saeed Contracting, Nasr City, and other companies) bought treasury shares.
In the previous sessions, the Egyptian Stock Exchange witnessed sharp declines, losing more than 5 thousand points.
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