Sinarmas Land share buyback raises questions

SHARE buybacks, part of a firm's defence arsenal to beat the market's under appreciation of its stock or to provide support amid a selloff, rarely turns into fodder for market wags.

This was not quite the case for Singapore-listed Sinarmas Land, a real estate firm controlled by Indonesia's billionaire Widjaja family, which coughed up S$88.5 million or 59 Singapore cents apiece to buy back 149.8 million shares on Sept 18.

Between then and Sept 30, the company has done several more buybacks, accumulating almost 152 million shares or half of some 304 million shares it is authorised to purchase under the programme. This would mark the firm's first buyback plan since its listing on the Singapore Exchange (SGX) in July 1997.

But it would be Sinarmas Land's first tranche of buyback done two weeks ago that has caught attention.

For one thing, the buyback involved a large chunk or 4.9 per cent of the firm's issued capital and the transaction made up over 98 per cent of the day's total traded volume in Sinarmas Land shares of 152 million shares.

The spike in the counter's trading volume - it was substantially higher than its average daily traded volume of some 1.3 million shares over a one-year period - led the SGX to issue a trading activity query to the firm on that same day.

Unusual volume movement

Sinarmas Land responded that apart from the buyback, it knew of no other reason for the unusual volume movement of its shares.

More interestingly, based on data from shareinvestor.com, the buyback was transacted under a single block at 3.34pm on that day.

Who was the seller(s) and could it be that the seller(s), who for now remains unknown, had stood on the offer side armed with such a sizeable block on the exact time that the company decided to activate its stock buyback without it being a pre-arranged deal or the company knowing the identity of the seller?

The answer to that is puzzlingly yes, as we now know based on Sinarmas Land's filing on the SGX that it was done via "market acquisition" or the open market.

Sinarmas Land did not respond to queries by The Business Times on the matter, but investor website NextInsight quoted the firm's investor relations manager Ronald Ng that the firm did not know who the seller or sellers are.

According to a spokesman from the SGX who cited the listing rules, the company need not disclose the name of the seller.

While the block falls just below the mandatory 5 per cent threshold for disclosure, disclosure is required if the seller were a substantial shareholder or director of the firm.

A quick glimpse of Sinarmas Land's shareholdings in Bloomberg shows that the Widjaja family, through Flambo International, owns 69 per cent interest of Sinarmas Land as at Sept 18 this year, while its second-largest shareholder owns merely 10.7 million shares or 0.4 per cent as at end July this year.

So where could this block of 4.9 per cent have come from?

Outstanding warrants

The deal's timing is another factor that has piqued curiosity; Sinarmas Land has some 1.52 billion warrants outstanding which were issued in 2010 and will expire in two months or Nov 18.

These European-style warrants finished on Thursday at 39.5 Singapore cents and on the exercise date, warrant holders can convert the warrants into shares by paying 10 Singapore cents per warrant. Based on Sinarmas Land shares closing price on Thursday of 56 Singapore cents and the conversion price, the warrants are "deep in the money".

Market wags point out that if the seller of the 4.9 per cent block of shares in Sinarmas Land also held the company's warrants, this party could potentially, if the share prices hold up at current levels over the next two months, pocket a handsome gain from the spread by converting the warrants into shares come strike date.

If this notion is indeed true, then the question arises - who is this party who could potentially benefit from the warrants conversion after selling sizeable shares under Sinarmas Land's buyback plan?

"A lot of these things happen and the real story comes out later. So we will know eventually," said a trader.

It is this impending disclosure, if any at all, that market observers will eagerly await in the coming days or weeks or even, months.