While no shares were floated through the initial public offering (IPO) in 2016, the year saw new records of share trading in the secondary market.
Share market has two components including the primary market where the initial public offering (IPO) takes place and the secondary market where existing shares are traded.
According to the annual report of the Royal Securities Exchange Ltd. (RSEBL), a total of about 11.48M shares worth Nu 328.67M were traded as compared to about 7.29M shares worth Nu 193.77M in the previous year, indicating an increase of 57.5 percent in volume and 69.61 percent in value.
Overall trading has increased by 4.19M shares during the year while in terms of value it has increased by Nu 134.91M.
Although recent figure indicate a market capitalisation of Nu 25.3B, as of December 31, 2016, the market capitalisation of 21 listed companies in the stock exchange has decreased to Nu 22.74B from Nu 23.99B during the same period of the previous year.
Market capitalisation is the value of shares at the prevailing share price. This is derived by multiplying the number of shares by the prevailing price. From the investors’ perspective, market capitalisation determines the worth of the 21 listed companies. This means, to improve the country’s capital market, either the size of the share or the price should go up.
The decrease in market capitalisation is due to buyback of Bhutan National Bank Ltd. (BNBL) and Jigme Mining (JMCL) shares and fluctuation of share prices in the market, according to the annual report.
The paid-up shares of JMCL were reduced to about 3.98M shares from 5.68M shares in August last year because of the buyback transaction. Similarly the worth of shares decreased from Nu 39.81M to Nu 56.87M.
Likewise, the BNBL has completed a buyback transaction of its shares from international Finance Corporation (IFC) and allotted 9.87M shares to the kidu foundation. As a result, its paid-up shares were reduced from Nu 3.54B to Nu 3.29B.
Initially IFC wanted to buy 10 percent of the bank’s shares but it was not possible because the FDI policy required a minimum of 20 percent investment from a foreign partner.
However, the minimum threshold for equity share holdings for foreign institutes investing in Bhutan was reduced to 10 percent, while amending the FDI policy. IFC last year offloaded 10 percent of its shareholdings.
Buyback is the re-acquisition of shares by a company of its own stock.
As per the Companies Act, a company shall have the right to buy back its own shares from its free reserves, share premium account or the proceeds of a prior issue made specifically for the purpose of buy-back. However, to approve such buybacks, a special resolution in the general meeting among shareholders is necessary.