Share Buyback Scheme: An Unexplored Corporate Management Tool

INTRODUCTION

A share buyback occurs when a company repurchases its shares from its shareholders. It is a situation where a company is investing in itself. In the past, this had given room to unscrupulous managers and promoters of companies to perpetrate fraud by creating an artificial buoyancy of the shares of companies and encourage dangerous speculative trading of shares by buying back shares through loans and luring the unsuspecting general public into dealing in those shares under the erroneous financial health of the companies created by them.

Yet, share buyback could also serve as a legitimate corporate management tool to deliver more value to a company’s shareholders and stakeholders in the capital market. In fact, it could be positively employed by a company to achieve including but not limited to:

1. returning surplus cash to shareholders;
2.  increasing  the underlying share value;
3. supporting the share prices during temporary weakness;
4. achieving or maintaining a target capital structure;
5. preventing or inhibiting unwelcome take-over bids.

For these and other positive uses, a share buyback mechanism can be deployed, the Companies and Allied Matters Act (CAMA) Cap C20 LFN, 2004 and the Securities and Exchange Commission (SEC) Rules allow companies albeit with restrictions to buy back their shares.

An Appraisal Of The Asset Management Corporation Of Nigeria (AMCON) Act, 2010.

The AMCON Bill was signed into law on the 9th day of July, 2010[1] as an Act to establish the Asset Management Corporation of Nigeria for the purpose of efficiently resolving the non-performing loan assets of Banks in Nigeria and for related matters.

President Goodluck Jonathan in a brief speech delivered after the signing ceremony declared that AMCON would “help to stimulate the recovery of the financial system from the recent crisis by boosting the liquidity of troubled banks through buying their non-performing loans, helping in the recapitalization of banks in which the CBN was forced to intervene, and increase access to restructuring/ refinancing opportunities for borrowers”.

It would be recalled that as at the end of November, 2009, CBN Governor Sanusi Lamido Sanusi had sacked the chief executive officers and directors of eight of the Nation’s 25 banks for allegedly imperiling the financial health of their organizations.[2] Sanusi had also disclosed that at the time, the rescued banks had an aggregate toxic assets’ portfolio in excess of N2Trillion. The act of the CBN Governor was perceived by many as an interventionist manovre to stem the haemorrhage that rocked the banking sector then. The AMCON Act could therefore be seen as a child born out of circumstance to ensure the affected banks remained a going concern.This write-up seeks to do an appraisal of the AMCON Act, with an examination of some of the salient provisions of the Act and ancillary issues.

Corporate Governance And Investor Confidence In Nigeria

The potential of an economy to attract investment depends largely on the state of governance of the economy and the policy thrusts of the managers of the economy. The primary duty of the managers of an economy is to use and maximize the limited resources of the economy efficiently to achieve the objectives of the economy. Such is the case with companies or corporations.

Investor sentiments are a crucial element of success for any company because the financial strength of the equities of any company depends largely on investor confidence. If the investor confidence is high, the share price of the company soars. If the investor confidence weakens, the value of the stock plummets.

The management and administration of companies, otherwise called corporate governance impacts heavily on the investor confidence of stakeholders of the companies. Therefore, the quality of corporate governance is a key issue for the stakeholders in view of their investments in the companies. In recent years, corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power and, in some cases, alleged criminal activity by corporate officers.