Senate body approves SECP’s proposal

ISLAMABAD: The senate standing committee on finance on Wednesday approved a proposal of the Securities and Exchange Commission of Pakistan (SECP) to allow listed companies to purchase their own shares and hold them as treasury shares.
The SECP proposed amendments into the section 95-A of the 1984 Companies Ordinance for this permission.
The senate standing committee on finance, which met on Wednesday, approved the amendments under which a listed company will be able to buy back its shares and retain them as treasury shares, if it believes that its shares are traded in the market below its fair value.
As per the present law, companies can buy back shares, but are required to cancel the shares.
Treasury shares have no entitlement for cash dividend and they can be used as an effective measure for bringing stability in the market and improving the earning per share of a company’s stock. The concept of treasury shares already exists in Malaysia, Singapore, US, UK, Australia and Japan. The amended section requires purchase to be made either through tender offer or through stock exchange against cash and out of the distributable profits or reserves of the company.
A company can dispose the treasury shares in the manner to be prescribed by the SECP through regulations. The proposed changes shall take effect once they are duly approved by both houses of the parliament.