- $745 million buyback plans follow 2015's record $9.9 billion
- Mainland ADRs fell 25% from December peak, then recovered half
Chinese companies listed in the U.S. are on track for their second-biggest year in share buybacks in at least a decade with $745 million announced so far amid a slump that cut their value by as much as a quarter since a December peak.
Stock-repurchase plans by five companies led by Sina Corp. follow 2015’s $9.9 billion, the most since at least 2005. At the current pace, buyback announcements will exceed 2014’s $3 billion, the second most. Repurchase programs over the past five years have totaled almost $16 billion, according to data compiled by Bloomberg.
“A lot of these companies see share prices have gone down a decent amount,” said Jeff Papp, a senior analyst in Lisle, Illinois at Oberweis Asset Management, which oversees about $1.9 billion and invests in Chinese ADRs. “The ones that want to remain listed in U.S. may follow suit as they have a lot of cash to support the share prices” with buybacks.
The Bloomberg China-U.S. Equity Index fell 25 percent from Dec. 24 to Feb. 11 in one of its worst routs ever. The gauge of American depositary receipts has since regained about half that loss, moving in tandem with the mainland stock market amid concerns that the country’s economy will continue decelerating.
SouFun Holdings Ltd. said in February it will buy back $200 million shares, the company’s first. The stock has slumped more than 25 percent this year. The $500 million share-buyback announced this month by news portal Sina, down 4 percent this year, was its second of that size in two years.
Companies buying their own shares are taking advantage of cheaper valuations compared to the mainland market. Stocks on Bloomberg’s ADR gauge trade at a median forward price-to-earnings ratio of 16, compared with 55 for the Shenzhen Composite Index.
“These multiples are probably accretive for most companies buying back shares,” said Gabriel Wallach, founder and portfolio manager at North Grove Capital in Boston. “Most of Chinese ADRs have positive cash flow and don’t have debt.”
Buybacks may have limited impact on share prices amid concerns about China’s economy and the yuan, which has fallen against most major currencies this year.
“There’s still a negative perception on all things tied to China from U.S. investors,” said Brad Gastwirth, chief executive officer of ABR Investment Strategy, from San Francisco.