Tired of Volatility? Mexico’s Newest Stock Almost Never MovesBy
Vinte shares have never closed more than 1% higher or lower
Company started a buyback program designed to support price
There’s a curious, almost absurd precision to Mexico’s newest stock: It closes at almost the same exact level every day.
In fact, shares of real-estate developer Vinte Viviendas Integrales have ended at the price they were sold at in the initial public offering -- 26.32 pesos -- on all but five of the 36 days they’ve traded. It’s an unusual phenomenon in a world where investors are used to big swings following stock debuts.
Here’s what’s going on: Vinte has been buying back its own stock barely two months after it raised 1.2 billion pesos ($57.8 million) going public. The company says the move is designed to stabilize the share price, yet Vinte’s practically been the only one trading its stock. In the month since the buybacks started, they’ve accounted for 93 percent of the trading in Vinte’s shares. (And all of the purchases were made at -- you guessed it -- 26.32 pesos a share.)
The choice to raise money in an IPO and then turn around and buy back the shares so soon and at the same price the company sold them at is mystifying to investors and analysts.
"The company can’t do that for ages," said Sean Farinaccio, who helps manage stock investments for The Rosen Group, a privately held real estate development group in New York who previously covered Mexican companies as an analyst at Carmel Asset Management. "It usually doesn’t portend well for the short-term share price when the company is supporting the stock but the stock’s not rising. That is indicative of some underlying selling pressure."
Alfredo Nava, an investor relations representative for Vinte, says the 100 million peso buyback program approved before the IPO will help the company "sustain its share price for the benefit of all its shareholders" and that it plans to renew the program next year. He said it has been a success, pointing to the stability in Vinte shares even as the benchmark IPC gauge lost 7.3 percent since the IPO.
Most of the companies that have gone public in Mexico in the past two years have buyback programs. Still, it’s rare to see a company repurchase its stock so soon after going public, said Aldo Miranda, an equity sales trader at CI Casa de Bolsa in Mexico City. After all, the purpose of selling shares is to raise money, so why go through the hassle and expense of hiring banks and holding roadshows and then turn around and buy the stock back?
"You’d expect them to announce a dividend payout first," he said.
On Nov. 15 alone, it bought back 61,120 shares, five times more than U.S. securities law allows for companies seeking so-called safe harbor from market manipulation charges. (The law says companies shouldn’t repurchase in one day more than 25 percent of the average daily volume over the past four weeks, according to SEC’s website.)
Mexico doesn’t set a buyback limit based on daily trading volume. Companies can acquire as much as 3 percent of the shares in circulation in the open market over a 20-day period. Vinte sold 46.4 million shares in the IPO.
Using buybacks to keep shares from falling is "almost always a losing endeavor," Farinaccio said.
— With assistance by Ben Bartenstein, and Lester Pimentel