Baosteel starts buyback program

Baoshan Iron & Steel Co (Baosteel) spent 69.09 million yuan ($10.94 million) buying back 14.89 million of its own shares Friday, the first day of the company's recently announced stock repurchasing program, according to a statement by the company filed with the Shanghai Stock Exchange Monday.

Baosteel initially stated on August 28 its intention to repurchase 1 billion of its own shares, accounting for 0.09 percent of the company's overall shares, over a 12 month period following board approval in order to protect the interests of its stakeholders and preserve the value of its shares. To date, Baosteel is the only mainland-listed blue-chip which has moved to buy back its own shares since regulators began allowing publicly traded companies to do so in 2006.

Experts contacted by the Global Times Monday were skeptical though whether other leading listed firms would soon follow Baosteel's example, given current restrictions on the market.

A company's decision to buy back its own shares is supposed to be a signal that it believes they are undervalued by the market, Li Bo, chief analyst for GF Securities, told the Global Times. Yet, buybacks have so far been rare among larger listed companies, Li said.

Amid concerns that Chinese firms would use repurchase moves to distort the prices of their shares, regulators imposed restrictions on how long a listed firm could hold on to reclaimed shares, Dong Dengxin, director of the Financial Securities Institute at Wuhan University of Science and Technology, told the Global Times.

Unlike most developed equity markets, where firms can retain their repurchased securities indefinitely, Chinese companies are required to sell off their repurchased shares within one year, giving them little influence in the market, according to Dong.

With such time limits, few blue chips have stepped forward over the past six years to launch buybacks, although this strategy is used occasionally by smaller firms who are more vulnerable to moves in their share prices, said Dong.