The capital management misstep

AMONG the priorities of the Securities Commission and Bursa Malaysia’s MY Value Up programme is for corporates to deliver value creation strategies over the medium to long term.

MY Value Up guides companies to have a clear strategy, which should be communicated to various investors, on how value will be created and sustained.

Among the key strategies are those related to capital management and balance sheet optimisation, which would help investors understand key financial targets and deliverables.

Share buybacks

This column has spoken at length about what share buybacks are and the importance of this tool in capital optimisation, as well as how these buybacks should be dealt with when it comes to improving shareholders’ returns.

Typically, companies obtain a shareholders’ mandate at a general meeting to carry out a share buyback programme, and this mandate allows a company to buy back up to 10% of its outstanding shares.

Companies undertake share buybacks in cases where the market is not appreciating the true value of a company and it is trading at a certain threshold below its intrinsic value.

In essence, share buybacks are carried out to enhance shareholders’ value over the long term.

In most cases, a share buyback is seen as positive for shareholders as it enhances the earnings per share (EPS) of the company, as shares repurchased reduce the number of outstanding shares.

Leaving everything else unchanged, a company that has bought back up to 10% of its shares will see an increase in EPS by the same quantum, simply due to the reduced number of shares.

The shares that are repurchased are held on the balance sheet as treasury shares and, correspondingly, shareholders’ funds are reduced by the value of the shares held.

Resale

Shares that are bought back by a company can be re-issued to potential investors or shareholders via placement or sale of the shares in the open market as well as dividend-in-specie.

Companies may also reissue these shares as consideration in a corporate exercise or merger and acquisition, while some companies do re-issue the shares repurchased under an employee share option scheme.

In Malaysia’s context, very rarely do we see repurchased shares being cancelled, which is a preferred treatment, as it permanently removes the shares that are bought back.

IJM

IJM Corp Bhd was recently in the news over issues related to share buybacks as it offloaded the entire block of shares that it had previously repurchased, comprising 142.4mil shares for RM385.07mil at prices between RM2.72 per share and RM2.74 per share.

The block of shares represents 3.9% of its now enlarged share base of 3,647.57 million shares.

Based on IJM’s previous disclosures, these shares were held as treasury shares with a value of RM1.66 per share.

Hence, the sale of the treasury shares resulted in a gain of RM148mil, or four sen per share.

Why sell?

As we are aware, IJM has a diverse shareholding structure, with institutions making up the bulk of its total shareholding.

The sale of the 142.4 million shares would have diluted the shareholdings of some of the major institutions, on the assumption that they did not participate in the purchase of this block of shares.

Interestingly, IJM was the target of Sunway Bhd early this year, as the latter attempted to acquire IJM for RM11bil in a cash-plus-shares offer, valuing IJM at RM3.15 per share.

As we are aware, the offer failed due to two key factors.

One was the opinion rendered by the independent adviser (IA), which deemed the Sunway offer to be not fair and not reasonable, as it attached a value of between RM5.84 per share and RM6.48 per share.

Second, IJM’s board also concurred with the IA’s opinion and recommended that IJM shareholders reject Sunway’s offer.

Hence, while IJM’s board opined the offer by Sunway was not fair and not reasonable, it is rather perplexing to see IJM itself disposing of its treasury shares in the open market at a price that is almost 45 sen, or 14%, lower than Sunway’s offer price.

According to IJM, the sale of the treasury shares forms part of its RM3bil value realisation initiative over three years, which includes the proposed listing of IJM Construction Sdn Bhd, the ­monetisation of the group’s mature Malaysian toll concessions and the progressive exit from its India investments.

While this may fit into the long-term objective of creating value for IJM shareholders, selling the treasury shares at a price that is even below Sunway’s offer price seems illogical and short-changing IJM shareholders, who were convinced that IJM shares are worth even more than Sunway’s voluntary general offer price.

Hence, the question lingering among investors is why IJM sold the treasury shares at a price that is lower than Sunway’s RM3.15 offer price, which it had deemed to be not fair and not reasonable?

Real value

The sale of treasury shares by IJM is a low-hanging fruit for the company to unlock value, as there are many other opportunities for IJM to improve shareholder value, especially with potential listing of IJM Construction and other exits.

To sell the shares at a price below Sunway’s offer was perhaps not the right thing to do, as IJM should have waited for more value to be created for the company before unlocking the true value of the treasury shares in the open market.

To be fair, IJM is not the only corporate that has decided to sell treasury shares in the open market, as KPJ Healthcare Bhd, too, in a circular to shareholders earlier this year with respect to its share buybacks, informed shareholders that it sold some 62 million shares for RM181.57mil, or at RM2.93 per share.

KPJ carried out the sale of its treasury shares between Dec 8, 2025, and March 13, 2026.

In the case of IJM, the treasury shares were all sold at one go.

In conclusion, while the MY Value Up programme is expected to help investors understand a company’s capital management strategies and long-term value creation, the sale of treasury shares in the open market does not seem like the right capital management strategy.