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[Monarch Strategy] Repurchase: A New Variable Affecting A-Share Pricing Framework _ Stocks

Release Time:2021-07-21 Topic:A-share pricing mechanism Reading:5 Navigation:Stock Liao information > Comprehensive > [Monarch Strategy] Repurchase: A New Variable Affecting A-Share Pricing Framework _ Stocks phone-reading


Foreword: The repurchase of stocks by listed companies will undoubtedly bring incremental funds. But more importantly, listed companies become the subject of transactions and directly enter the market to influence the pricing framework. The long-term large-scale repurchase wave of US stocks, which is hotly discussed in the domestic market, is precisely the repurchase as an important variable that has affected the pricing framework of US stocks. Companies with strong profitability repay shareholders through repurchases and push up their stock prices pro-cyclically. The A-share repurchase is more similar to that of Hong Kong stocks. It is more used as an emergency tool to stabilize the stock price counter-cyclically, and the repurchase scale is small, which has a very weak impact on the A-share pricing framework. However, under the reform of the system, the repurchase of A shares has increased, and listed companies are allowed to issue convertible bond repurchases. This will undoubtedly open up the space for convertible bond financing and cash repurchase, which will increase the linkage between the fundamentals of listed companies and stock prices, and repurchase will affect A shares. New variables in the pricing framework.


System comparison: A shares, U.S. stocks, and Hong Kong stocks return Comparison of purchase systems

Stock repurchase refers to the act of a listed company as a trading entity repurchasing its outstanding ordinary shares from shareholders. The repurchased shares can be: (1) cancelled, (2) issued Convertible bonds, (3) equity incentives, (4) employee stock ownership plans, (5) sell directly on the market for cash, etc. In most cases, the repurchased shares have no voting rights and no income rights.



The A-share repurchase system has been relaxed, but it is still stricter than the US and Hong Kong stocks p>

1.1.1. The U.S. stock repurchase system: Permitted in principle, prohibited by exception

Stock repurchase originated in the United States in the 1950s, and the United States The earliest legal provisions for stock repurchase appeared in the Standard Commercial Company Law, in which the company’s acquisition of its own shares was described as “the company can acquire its own shares, and the shares obtained thereby constitute authorized but not yet issued shares”. In the 1970s, during Nixon’s administration, the company restricted the distribution of cash dividends. Stock repurchase became the main form of dividends paid by the company to shareholders. However, because the repurchase of stocks may be suspected of insider trading and market manipulation, the act of repurchasing stocks in the U.S. market Not universal.

The United States law began to deregulate stock repurchase in 1982, and has maintained an open attitude since then. "Permitted in principle, prohibited by exception" explains the characteristics of this regulation very well. In 1982, the SEC formulated Rule 10b-18, which provides a "safe harbor" from the institutional level for stock repurchase. If the repurchase meets the four conditions in Rule 10b-18 (transaction method, time, quantity, price) ), the risk of being judged as insider trading or market manipulation is greatly reduced, which has also prompted the prevalence of U.S. stock repurchase since the 1980s. In 2000, the SEC further formulated Rule 10b5-1, stipulating that companies can pre-publish stock repurchase plans and implement them through automated trading to avoid being considered insider trading or market manipulation. However, because companies do not necessarily carry out repurchase in actual operations, it is misleading to the market. For this reason, the SEC revised Regulation SK in 2003, requiring listed companies to announce the actual results of the previous quarter in regular financial statements such as quarterly reports and semi-annual reports. Share repurchase situation.

1.1.2. A-share repurchase system: prohibition in principle, permission by exception, and relaxation of restrictions

The construction of my country's stock repurchase system started relatively late, characterized by "principle prohibition, exceptions allowed." Initially, my country’s legislation on stock repurchase can be traced back to the beginning of 1992, when the National Economic System Reform Commission issued a notice on the "Regulatory Opinions on Limited Liability Companies" and "Regulatory Opinions on Limited Liability Companies", which stipulated in Article 32

In principle, it is forbidden for companies to purchase their own issued stocks and not to stock the company's issued stocks. Under exceptions, special circumstances such as capital reduction are stipulated. Purchase and stocking of the company's stocks are approved by the restructuring department and approved by the People's Bank of China. . In 1993, my country promulgated the "Company Law of the People’s Republic of China" and came into effect on July 1, 1994. It followed the principle of strict control over the company’s acquisition of its own stock. Shares, except when shares are cancelled to reduce the company’s capital or merged with other companies that hold shares of the company. After the company purchases the company’s stocks in accordance with the preceding paragraph, it must cancel the part of the shares within ten days, go through the registration of changes in accordance with laws and administrative regulations, and make an announcement.

In June 2005, the China Securities Regulatory Commission issued the "Administrative Measures for the Repurchase of Public Shares by Listed Companies (for Trial Implementation)", which opened the historical process of the standardization of China’s stock repurchase system. In October 2005, an amendment to the "Company Law of the People's Republic of China" was passed.

The revised Company Law still follows the principle of prohibition and exception permission for share repurchase, but it is more detailed than the previous design. It reflects the legislative intent of the "Company Law" to protect the development of the capital market. The revised law categorizes the exceptions into four categories: capital reduction, merger with other companies holding shares, rewards for employees, and shareholder’s right to object to repurchase requests. Those involving open market share repurchases are used for reductions. The purpose of funding and rewarding employees. However, the legislation at this stage is to a certain extent in order to cooperate with the process of my country's share-trading reform, and to reflect more administrative functions, but has not truly reflected the market-oriented needs of various stakeholders. As the A-share market enters a new tradable market environment, the China Securities Regulatory Commission promulgated the "Supplementary Provisions on Listed Companies Repurchasing Shares by Centralized Auction Trading" in October 2008 to further regulate the stock repurchase behavior of listed companies and make The repurchase behavior is more market-oriented, and its transparency is improved to prevent insider trading.

China’s stock repurchase system has ushered in new developments. In September 2018, the China Securities Regulatory Commission and relevant departments proposed to improve the stock repurchase system of listed companies and solicit opinions on the draft of the "Amendment to the Company Law of the People's Republic of China". On October 26, the 13th National The sixth meeting of the Standing Committee of the National People’s Congress deliberated and passed the “Decision of the Standing Committee of the National People’s Congress on Amendments”, and made special amendments to the provisions of Article 142 of the Company Law concerning the repurchase of company shares, starting from the date of promulgation. Implement. The draft amendment in October 2018 made the following changes to the "Company Law" share repurchase regulations:

First, increase the share repurchase situation. New situations include: employee stock ownership plans, listed companies for equity conversion in conjunction with the issuance of convertible corporate bonds and warrants, listed companies necessary to maintain the company’s credit and shareholders’ rights, legal, Other circumstances stipulated by administrative regulations, etc.

Second, improve the decision-making process. Due to the implementation of employee stock ownership plans or equity incentives, the listed company cooperates with the issuance of convertible corporate bonds and warrants for equity conversion, and the listed company implements the decision-making procedure for share repurchase in order to protect the company’s credit and shareholders’ rights and interests. Be simplified.

Third, extend the holding period of repurchased shares. Clarify that the company’s shares repurchased by the company due to specific circumstances can be held in inventory.

Fourth, some requirements for repurchasing shares have been added.

The biggest difference in this repurchase system modification is the change in the treasury stock system. In the past, the "Company Law" stipulated that the repurchased shares used for employee incentives must also be transferred within one year, and it is not allowed to hold the repurchased shares in inventory, so the market function of share repurchase is restricted to a certain extent , But the revised company law relaxes this period, essentially allowing the existence of treasury stocks. In contrast, stocks repurchased in mature overseas markets can be retained as "treasury stocks" and be issued as convertible bonds or included in employee benefit plans at the right time, or sold when there is a need for funds in the future , So more flexibility. Therefore, this modification of the repurchase system will further give full play to the market-oriented role of share repurchase and increase the enthusiasm of listed companies for share repurchase.

Support the share repurchase in order to maintain the company's value and shareholders' equity, and further relax the repurchase conditions. On November 9, 2018, the China Securities Regulatory Commission, the Ministry of Finance, and the State-owned Assets Supervision and Administration Commission jointly issued the "Opinions on Supporting Listed Companies’ Share Repurchase Implement equity incentives and employee stock ownership plans. 2. Encourage the use of other market tools to provide financing and other support for share repurchase. 3. Simplify the procedures for implementing repurchase. If the stock price of a listed company is lower than its net assets per share, or the stock price has fallen by 30% within 20 trading days, share repurchases can be carried out to maintain the company's value and shareholders' equity. If a listed company implements share repurchase and reduces its registered capital due to this situation, the restrictions on the stocks’ listing for one year and the current repurchase window period (10 days before the announcement of the regular report or performance bulletin, and the demonstration period of major events) are not applicable. Where the general meeting of shareholders authorizes the board of directors to implement share repurchase, it may also authorize the implementation of refinancing. The "Opinions" in addition to supporting the "repurchase protection", further relaxed the conditions for listed companies to carry out repurchase. If the above-mentioned conditions of serious stock price decline are met, they can also repurchase shares within one year of listing, and allow listed companies to repurchase shares on a regular basis. Shares are repurchased in sensitive periods such as 10 trading days before the report or performance bulletin is announced.

1.1.3. Hong Kong stock repurchase system: between A shares and U.S. stocks

The Hong Kong stock repurchase system is "permitted in principle, Exceptional prohibition" is between A-shares and U.S. stocks. The current repurchase system of Hong Kong stocks is biased towards US stocks (permitted in principle, prohibited by exception). Compared with A shares, there are fewer restrictions on the repurchase of shares by listed companies, such as allowing on-exchange and off-exchange (that is, private agreement) transactions. The Hong Kong Stock Exchange has made more specific and detailed strict regulations on the sources of funds, repurchase prices, repurchase procedures, repurchase methods, and information disclosure in the "Comprehensive Main Board Listing Rules." Among them, ordinary resolutions submitted to shareholders for the repurchase of shares must include the total number and type of repurchased shares, and the repurchase quantity shall not exceed 10% of the number of issued shares. In addition, it also stipulates a series of trading restrictions. If the purchase price is 5% or more than the average closing price of the shares on the Exchange in the previous 5 trading days, the issuer shall not repurchase the shares on the Exchange. Shares. At the same time, it also proposes exemptions for trading restrictions. For example, when a political or economic event has a material adverse effect on the price of the shares, the relevant restrictions can be exempted to ensure the stability of the share price under extreme conditions. .

1.1.4. Summary: Under institutional constraints, A-share repurchase may be more reasonable with reference to Hong Kong stocks


From the perspective of legislative models, different countries and regions have different legal cognitions, values, and legal systems, and the legislative models they have formulated or adopted are also different.

It is generally believed that there are two legislative models for the stock repurchase system: one is "permitted in principle and prohibited by exception" represented by the United States, and the other is "banned in principle and allowed by exception" represented by Germany. Relevant systems in Mainland China belong to the "principle prohibition, exceptions allowed". The strength of relevant Hong Kong regulations is between A shares and U.S. stocks, but they still fall into the category of "principles allowed, exceptions prohibited".

From the perspective of the applicable circumstances of stock repurchase, in principle, the United States allows listed companies to repurchase shares. The "Model Company Law" of the United States stipulates that companies are allowed in principle to repurchase stocks. The "Delaware Corporation Law" also mentions that companies can repurchase their own stocks without damage or weakening of their capital. The latest regulations in Mainland China have clarified six situations where repurchase is allowed. Hong Kong is similar to the United States. In principle, listed companies are allowed to buy their own shares.

From the perspective of the repurchase process and repurchase restrictions, the US SEC Rule 10b-18 restricts stock repurchase from four aspects: the method, time, price and quantity of repurchase; Mainland China There are different regulations for different stock repurchase situations, and it is stipulated that the repurchased stocks cannot be used for pledge; Hong Kong stipulates that the stocks must be cancelled after repurchase and imposes certain restrictions on the repurchase price.

From the perspective of financial resource restrictions on stock repurchase, there are currently three types of financial resource restriction models in the United States:The debt capacity test model, the “retained income” model represented by the California Corporation Law, and the “surplus” model represented by the New York State Corporation Law and the Delaware Corporation Law; Mainland China currently has regulations on this part There is a breakthrough. The old rules require that the repurchase funds must be after-tax profits, and the new rules allow debt repurchase; Hong Kong, China requires that it must come from distributable profits or redeem the proceeds from the issuance of new shares for the purpose of redemption. Back.


Theoretical Research: Repurchase Motivation and Market Effect



Repurchase Motivation Theory

The repurchase motivation is the essential starting point for the stock repurchase of listed companies, and it is also an important reference factor influencing investors to make correct decisions. A lot of research has been done by the academic community to understand The future changes of the A-share repurchase provide theoretical support. According to the analysis of the following repurchase principles, the repurchase of shares will increase the leverage ratio, ROA, ROE, and EPS. If the PE remains unchanged, it will also increase the stock price.

2.1.1. U.S. stock repurchase motivation: a comprehensive and multi-level study

Since the 20th century Since the implementation of stock repurchase in the United States in the 1950s, overseas scholars have conducted comprehensive and multi-level research on the motivation of U.S. stock repurchase, mainly forming the signal hypothesis, excess capital hypothesis, financial leverage hypothesis, merger defense hypothesis and other repurchase motivation theories The details include: (1) Increase EPS by reducing the company’s equity, while increasing financial indicators such as ROE, ROA, and leverage; (2) Sending signals to the market that the value of stocks is underestimated; (3) Reducing agency costs and alleviating over-investment, etc. Problems, improve the efficiency of the use of free cash flow; (4) replace cash dividends, and reasonably avoid tax; (5) prevent equity dilution; (6) avoid malicious mergers and acquisitions.

2.1.2. Motivation for A-share repurchase: qualitative analysis and case analysis are the main points

China’s capital market started late, and The repurchase system is relatively strict, and the corresponding repurchase scale and method are significantly different from those in developed markets. The research on stock repurchase has just started. The relevant literature mostly provides qualitative analysis and case analysis of repurchase, and systematic theoretical research and empirical analysis. Relatively few.

Generally speaking, the signal transmission hypothesis has been generally recognized and verified in the Chinese market. Xu Guodong, Chi Mingkui (2003), Yizhi, Zhang Weiqun (2005) In his research, the event research method is used to study the repurchase signal transmission of listed companies in China. The results show that the stock price and financial indicators of the companies implementing stock repurchases have improved, investors have identified undervaluation signs and responded positively, and the true value of the company has received more attention [8] [9 ]. Ma Ming and Yun Huaili (2009) found through statistical analysis that the stock repurchase announcements of listed companies in my country have a certain information content, which can convey information about underestimation of stock prices to the market [10 ]. Wang Chang (2012) selected 79 repurchase announcements issued from 2005 to 2011 as a sample. Compared with previous studies, the sample size has increased significantly, and through the multiple regression model, it is found that the signaling hypothesis has a positive effect on the repurchase motivation of A-share listed companies. Very good explanatory [11 ].

In addition, before the share-trading reform, stock repurchase motives also included promoting the implementation of the share-trading reform and resolving issues such as one-share dominance. Zou Shuping (2002) believes that the motivation of my country's stock repurchase is to reduce state-owned shares. For example, Lujiazui and Changchun Hi-tech repurchase state-owned shares to make the company's capital structure more reasonable. [12 ].



Repurchase market effect: A-share and U.S. stock repurchase have a positive effect on stock price

2.2.1. U.S. stock repurchase effect

Most of the existing studies support that after stock repurchase announcements, listed companies can often obtain cumulative excess returns. Vermaelen (1981) used the event research method to investigate the market effect of U.S. stock repurchases.It was found that the cumulative excess return rate after the stock repurchase announcement was significantly positive [13 ]. Comment and Jarrel (1991) further pointed out that repurchase offers, Dutch auctions, and open market repurchases are all accompanied by a significantly positive cumulative excess return rate after the announcement, among which the market effect of repurchase offers is the strongest. [ 14 ]. Ikenberry et al. (1995) studied the long-term market effect after the public market share repurchase announcement in the United States from 1980 to 1990, and found that the cumulative excess return rate in the four years after the repurchase announcement was 12.1% [15 ]. The research of Isagawa (2002) shows that there is information asymmetry. The repurchase announcement will reveal the private information of the company’s managers. The repurchase announcement is credible, and the stock price fell before the announcement and rose after the announcement [16 ].

2.2.2. A-share repurchase effect

my country’s current research on the effect of the stock repurchase market believes that it has Positive effect. Wang Wei (2002) believes that if the effect of conveying the information of underestimation of stock prices is greater than the effect of conveying the company’s lack of good investment opportunities, the cumulative excess return rate after the repurchase announcement is positive, and the repurchase of state-owned shares can indeed bring about the A share price Significant excess returns [17 ]; Liang Lizhen (2006) empirical research found that the Chinese stock market has a positive response to the announcement of company repurchase stocks. After the announcement, the cumulative excess return rate is significantly positive, but there is The phenomenon of information leakage before the announcement [18 ]. Liu Donglin et al. (2009) selected 56 A-share repurchases in my country from 1991 to 2007 as a sample. The study found that the repurchase of non-tradable shares and tradable shares has a positive cumulative excess return, and the repurchase scale and timing, and financial leverage , Corporate governance structure and other factors have a positive impact on the market effect of stock repurchase [19 ].


Data analysis: Compared with U.S. stocks, A-share repurchases are more similar to Hong Kong stocks. In 2018, the scale of A-share repurchases surged and exceeded Hong Kong stocks


Features of U.S. stock repurchase: large scale and procyclical

The scale of U.S. stock repurchase is large, It has certain procyclical characteristics. Using S&P 500 as the representative of U.S. stocks, according to the cash flow data of repurchase shares disclosed in the U.S. stock financial statements of Choice, the annual repurchase scale of the S&P 500 index declined during the 2008 financial crisis. The financial crisis The post-repurchase scale gradually increased, and it has grown significantly since 2011, boosting the upward trend of U.S. stocks. In 2013, the net repurchase amount exceeded US$400 billion, and the net repurchase scale in 2017 reached US$532.2 billion. As of the third quarter of 2018, this data has reached 466.8 billion U.S. dollars, and the annual rolling quarterly calculation is 619.2 billion U.S. dollars, which is 2.8% of the S&P 500 market value. The scale of S&P 500 repurchase is synchronized with the trend of its index, which has certain procyclical characteristics.

In terms of structure, the scale of information technology repurchase is the largest, and the scale of repurchase in different industries and the net profit attributable to the parent are significant Positive correlation. From the perspective of the industry distribution of S&P 500 component stock repurchases, from 2006 to the third quarter of 2018, the top five industries for repurchase scale were information technology, finance, healthcare, non-daily consumer goods, and industry in order. At the same time, by calculating the net profit of S&P 500 constituent stocks attributed to the parent by industry from 2006 to the third quarter of 2018, it can be found that the size of US stock repurchases is significantly positively correlated with the net profit of the corresponding industry attributable to the parent. It shows that in the long run, the basis for large-scale repurchase of US stocks is its profitability creation ability.

After the financial crisis, The large-scale procyclical repurchase of US stocks can be mainly explained by the excess capital hypothesis, the financial leverage hypothesis and the financial flexibility hypothesis. The United States adopts a quantitative easing policy, which makes the long-term interest rate of the United States enter a downward channel, the cost of debt financing has dropped sharply, credit continues to expand, and corporate debt financing has become more convenient. As the economy recovers and corporate profitability rebounds, the yield gap of S&P 500 higher grade corporate bonds has converged. For businessIn order to improve the efficiency of capital use and avoid agency problems caused by excessive excess funds, the reduction of equity capital by repurchasing stocks can not only increase EPS and ROE, but also increase the financial leverage ratio, thereby optimizing the capital structure, increasing the company’s value, and making the company Large-scale repurchases pushed up the stock price. But conversely, rising financing costs and falling corporate profits will also reduce corporate repurchase motivation. In addition, stock repurchases bring capital gains to shareholders, while the tax rate of capital gains on U.S. stocks is lower than the tax rate on cash dividends, and companies such as financing repurchases will also bring a tax shield effect, which is conducive to enhancing corporate value. [20 ].


Features of Hong Kong stock repurchase: small scale, counter-cyclical

Hong Kong stock repurchase Obviously different from US stocks, repurchases mostly occur during periods of poor market conditions. According to Wind data, the Hong Kong stock market has repurchased a total of HK$190 billion from 2007 to 2018, which is significantly lower than that of US stocks. Moreover, the peak period of Hong Kong stock repurchase often occurs in periods when the market environment is poor, such as 2008 when the financial crisis occurred and 2011 when the European debt crisis occurred. Hong Kong stocks experienced two rounds of bear markets, with the repurchase amount being HK$17.3 billion and 103. Billion Hong Kong dollars. In 2018, the global market was turbulent, Hong Kong stocks declined, and the repurchase scale reached a new high, reaching 30.5 billion Hong Kong dollars.

Hong Kong stock repurchase has counter-cyclical characteristics, and the number of repurchases has risen sharply during the rapid market downturn. More It is used as a signal transmission mechanism. From the monthly repurchase situation of Hong Kong listed companies, the monthly peaks of the number of companies implementing repurchase were October 2008, September 2011, January 2016, and October 2018, which were 119 and 87 in that order. , 79, 89. These months have been accompanied by the rapid decline of Hong Kong stocks, with a decline of 22.5% in October 2008, 14.3% in September 2011, 10.2% in January 2016, and 10.1% in October 2018. And as the market stabilized and went up, the number of companies implementing repurchase fell significantly. For example, in October 2008, the Hang Seng Index fell by 22.5%, but it has not yet bottomed out. The number of repurchases in that month reached 119. In February 2009, the Hang Seng Index fell by 3.5% and bottomed out, while the number of repurchases in that month was 34. It dropped by nearly 70%. The repurchase behavior of Hong Kong stocks can be explained by the signal hypothesis. The main purpose of the repurchase of listed companies may be more to send a signal of underestimation of the company's value to the panic market, which is conducive to restoring market confidence.

The overall repurchase willingness of Hong Kong stocks is not strong, and the repurchase willingness of finance, energy and information technology is the weakest. From the perspective of the industry distribution of Hong Kong stock repurchase, from 2008 to 2018, the top five industries of Hong Kong stock repurchase scale were real estate, non-daily consumer goods, communication services, industry, and daily consumer goods. Among them, the real estate industry repurchases The amount is HK$70.8 billion, accounting for 38% of the total repurchase, far exceeding the rest of the industry. At the same time, calculating the net profit attributable to the parent in different industries of Hong Kong stocks from 2008 to 2018, it is found that the two are slightly negatively correlated, but not significant. With the exception of real estate, finance, information technology, and energy, which are the top industries in terms of net profit attributable to the parent, hardly repurchase, and the repurchase amount/net profit attributable to the parent is less than 0.3%. It shows that Hong Kong stock repurchase is different from U.S. stocks. Repurchase is more an emergency tool than a long-term return to shareholders.


Characteristics of A-share repurchase: counter-cyclical, large growth in scale

A-share repurchase started late, and the repurchase scale increased significantly in 2018. During the share-trading reform period, the share repurchase in the A-share market mainly existed as a special tool for mitigating the encroachment of major shareholders, corporate mergers and acquisitions, and divestiture of non-performing assets. The repurchase scale was small and its development was slow. According to data on A-share listed company repurchase plans calculated by Choice, there were 3, 8, and 40 listed companies that announced stock repurchase plans from 2010 to 2012. After 2013, the development of stock repurchase accelerated, and repurchase incidents gradually increased. In 2018, the A-share listed company repurchase system was further improved. The number of listed companies that announced stock repurchase plans that year reached a new high since 2010.There are 978 companies, accounting for 27.4% of all A-share listed companies. In terms of repurchase implementation, the actual repurchase amount from 2012 to 2017 was relatively low, with an annual average of 7.3 billion yuan. In 2018, the actual repurchase amount increased significantly to 73.5 billion yuan, an increase of nearly 10 times.

Similar to Hong Kong stocks, A-share repurchase has certain counter-cyclical characteristics, and it mostly occurs during the bottom of the market downturn, sending signals of undervaluation to the market. According to Choice data, there have been three rounds of craze in the history of A-share repurchase, from October 2012 to January 2014, from July 2015 to June 2016, and from January 2018 to December 2018. Among them, the Shanghai Composite Index fell 2.5% from October 2012 to January 2014, at the bottom of the market, with a range of 11.8 billion repurchases; from July 2015 to June 2016, the Shanghai Composite Index fell 31.5%, and the market was at the bottom of the market. The rapid downtrend bottomed out, and the range of repurchase amounts was 11.1 billion yuan; from January 2018 to December 2018, the Shanghai Composite Index fell 24.6% and fell rapidly. The monthly repurchase amount continued to increase, and the range repurchase amount rose sharply to 73.5 billion yuan. Significantly higher than the previous two rounds of repurchase boom. It shows that the A-share repurchase is similar to that of Hong Kong stocks. It is small in scale and mostly occurs at the bottom of the market. Listed companies announce and implement repurchases to send investors a signal of underestimation of stock prices and enhance investor confidence.

A-shares transmit undervaluation signals through repurchase, which is a response to the rapid downturn of the short-term market. The rapid decline of A shares in 2018 has exposed the issue of pledges. As part of the policy combination, the repurchase system has been relaxed, and the repurchase scale has increased significantly. Specific to the industry, the top five industries for A-share repurchase amounts in 2018 were optional consumption, industry, materials, information technology, and healthcare. The corresponding repurchase amounts were 22.8 billion yuan, 12.6 billion yuan, 11 billion yuan, and 10.7 billion. RMB 6.5 billion. At the individual stock level, the repurchase ratio has a certain negative correlation with the rise and fall. The main reason is that the short-term market declines rapidly, and companies with greater declines have a stronger motivation to release signals of underestimation through repurchase, and to enhance investor confidence, thereby stabilizing stock prices.


Summary: US stock repurchase is pro-cyclical, A-share Hong Kong stock repurchase is counter-cyclical, and the interval between the peak of Hong Kong stock repurchase and the bottom of Hong Kong stocks is within 4 months.

US stocks repurchase The scale of the purchase cycle is large, and the countercyclical scale of A-share Hong Kong stock repurchase is small. The scale of A-share repurchase in 2018 has increased significantly

. From 2012 to 2017, A-share repurchase has developed, but it has been relatively slow. From 2012 to 2017, the average annual repurchase of A shares was 7.3 billion yuan. The average repurchase/market value and the average repurchase/repurchase net profit were 0.02% and 0.29%, respectively, which were lower than the 0.05%, 0.35% and S&P of Hong Kong stocks in the same period. 2.52% and 51.16% of 500. In 2018, the A-share repurchase system was reformed and the repurchase scale was significantly increased to 73.5 billion yuan. The average repurchase/market value and the average repurchase/repurchase net profit were 0.15% and 1.99%, respectively, which exceeded the 0.08% and 0.08% of the Hong Kong stocks in the same period. 0.46%, but still lower than the 2.71% and 53.07% of the S&P 500. The repurchase of US stocks is pro-cyclical, and the repurchase of A-shares and Hong Kong stocks is counter-cyclical. Since 2008, the interval between the peak of Hong Kong stock repurchase and the bottom of Hong Kong stocks has been within 4 months, which has certain guiding significance for judging the bottom of the market. The three rounds of A-share repurchase boom also occurred at the bottom of the market, but the peak of the repurchase may lag behind the bottom of the market, and this round of A-share repurchase superimposed system changes, the guiding significance of the market bottom needs to be further observed. The difference in the characteristics of A-share repurchase between Hong Kong stocks and U.S. stocks is due to the fact that the repurchase of A-shares Hong Kong stocks is mainly based on sending signals of underestimation to boost the stock price during the market downturn; while U.S. stock repurchases are for improving capital efficiency and optimizing financial leverage. Enhance corporate value and use financial flexibility to avoid taxation as the main means for companies to return to shareholders.


A share repurchase outlook: scale, pace, Structure and new model

The reform of the repurchase system has been implemented, and the A-share repurchase has entered a new stage in 2019. The direct participation of listed companies in transactions will affect the A-share pricing system. 2019On January 11, 2010, the Shanghai and Shenzhen Stock Exchanges respectively issued the "Implementation Rules for the Repurchase of Shares by Listed Companies" (hereinafter referred to as the "Repurchase Rules"), which means that the reform of this round of repurchase system has been implemented. In 2018, the number of listed companies to be repurchased reached 978, accounting for 27.4% of the number of A-share listed companies. Looking forward to 2019, the new A-share repurchase regulations will ease the repurchase situation, simplify the repurchase procedure, allow the existence of treasury stocks, increase debt financing as a source of repurchase funds, and clarify the requirements for disc-protected repurchase and repurchase share reduction. It reduces the barriers to the repurchase of listed companies, and also gives listed companies more space for autonomy. Listed companies can design repurchase plans based on different considerations, such as issuing convertible bond financing for repurchase maturity and re-equity conversion, repurchase repurchase and re-sale of their own funds, etc., while changing the company’s fundamentals, it also directly affects the stock price. The linkage between face and stock price has been strengthened.


It is estimated that the repurchase scale is between 63.1 billion yuan and 218.8 billion yuan. The absolute return on the 15th day after the announcement of the repurchase plan is the best. Industries with more downstream private enterprises, such as home appliances, media, and computers, are more willing to buy back


4.1.1. Estimation of potential repurchase scale

The relaxation of the repurchase system has given listed companies more flexibility and Autonomous space, and its increased repurchase enthusiasm has also strengthened the "investor" function of listed companies, and the repurchase funds of listed companies are expected to become one of the sources of market incremental funds.

The scale of repurchase of listed companies is constrained by policies, capabilities and willingness. It is estimated that the scale of repurchase in 2019 will be between 63.1 billion yuan and 218.8 billion yuan.

(1) Policy upper limit: According to the "Repurchase Rules", the total number of shares of the company held by the repurchase shall not exceed 10% of the total issued shares of the company. Calculating the total value of the A stock market on February 14 is 53.7 trillion yuan, the upper limit of the policy on the scale of listed companies' repurchase is 5.37 trillion yuan.

(2) Capability upper limit: Although the "Repurchase Rules" specify that listed companies can use debt financing as a source of funds for repurchase, the basis of debt financing is also the profitability of the company itself. Some investors benchmarked the A-share repurchase with U.S. stocks. The repurchase scale of U.S. stocks accounted for roughly half of the net profit attributable to the parent. According to Wind’s consensus, the net profit attributable to the parent company in 2019 is expected to be 4.4 trillion yuan. The purchase scale is 2.2 trillion yuan. However, according to the previous research, A-share repurchase is closer to Hong Kong stocks and has a large gap with U.S. stocks. It is unreasonable to benchmark A-share repurchase with U.S. stocks. We believe that the A-share repurchase is still based on the profit of the A-share company itself, and the "Repurchase Rules" clearly treats cash repurchase as cash dividends, and the two have an alternative relationship. It is more reasonable to use the size of cash dividends as the upper limit of the repurchase capacity. . According to Wind data, since 2012, the cash dividend of A shares has increased year by year. In 2018, the cash dividend was 948.9 billion yuan, and the cash dividend/net profit attributable to the parent increased from 22% to 24%. The proportion of cash dividends has grown relatively smoothly. If calculated at 24% in 2019, the cash dividends in 2019 will reach 1.1 trillion yuan, which can be used as the upper limit of the repurchase capacity of A-share listed companies.

(3) Upper limit of willingness: It is worth noting that the repurchase of listed companies is also restricted by the willingness of the actual controller. According to the classification of Wind's corporate nature, in 2018, nearly 50% of A-share cash dividends were provided by state-owned enterprises, and foreign companies had the highest willingness to distribute, with a cash dividend rate of 41%. However, in terms of repurchase, nearly 80% of the A-share repurchase amount was implemented by private enterprises, and private enterprises have a strong willingness to repurchase, with the repurchase amount/net profit attributable to the parent reaching 8%. The above differences are mainly due to a. The stock price is closely related to the interests of the actual controllers of private enterprises. When the market environment is poor, the actual controllers of private enterprises use cash repurchase instead of cash dividends to boost the stock price and send positive signals to the market. strong. b. Under the current profit transfer mechanism of state-owned listed companies, the profit turned in is mainly through cash dividends. If the repurchase is adopted, it will face the problem of a decline in the shares of the superior unit and the company's capital reduction. In addition, the current state-owned enterprise assessment mechanism focuses on the management of the company, not the performance of the stock price. Therefore, the willingness of state-owned listed companies to replace cash dividends through cash repurchase is weak. c. Wind corporate nature classification, and a large number of financial institutions are classified as public enterprises. In 2018, bank and non-bank cash dividends in public enterprises accounted for nearly 90%, but the cash dividend rate was lower than that of other industries. In the economic downturn, financial institutions replenish capital by issuing convertible bonds and perpetual bonds in order to ensure their operations. Repurchase capital reduction is contrary to this, and the operation is more hindered than cash dividends, so public companies use cash repurchase insteadThe cash dividend space is not optimistic. In summary, from the perspective of the willingness of cash repurchase to replace cash dividends, the repurchase scale is expected to be between 63.1 billion yuan and 218.8 billion yuan (see Table 10 for calculations).

4.1.2. Repurchase rhythm analysis

The A-share repurchase boosted the stock price. After the announcement of the repurchase plan, absolute and relative returns can still be obtained. The absolute return on T+15 is the best. Taking the 3192 stock repurchase plans announced from January 1, 2012 to December 31, 2018 as a sample, the date of the announcement of the repurchase plan is T day, and the 10 days before T are calculated respectively (

refers to The trading day, the same later), the 5th, the same day and the next 5th, 10th, 15th, 20th, 25th, 30th, the range of the stocks' range of gains and losses and the relative gains and losses of the Shanghai Stock Exchange during the same period are analyzed. The results showed that the 10 days and 5 days before the release of the repurchase plan, the range of increase and decrease was -0.98% and -0.59%, compared with the Shanghai Stock Exchange's increase and decrease of -0.03% and 0.06% during the same period, indicating that A-share repurchase mostly occurred in The market is falling. At the same time, the increase or decrease on the T day was 0.42%, compared with the increase of 0.42% on the Shanghai Stock Exchange during the same period, indicating that the A-share repurchase has a boosting effect on the stock price, which is consistent with the previous study. It is worth noting that the 5th, 10th, 15th, 20th, 25th, and 30th intervals after the announcement of the repurchase were 0.82%, 1.08%, 1.16%, 0.99%, 0.90%, 0.69%. In the same period, the Shanghai Stock Exchange's gains and losses were 0.77%, 1.08%, 1.23%, 1.19%, 1.24%, and 1.29%, indicating that after the announcement of the repurchase plan, the purchase can still obtain absolute and relative returns, and the absolute returns will be the highest on T+15. good.

4.1.3. Distribution of repo structure

Industries with more downstream private enterprises, such as home appliances, media, and computers, are more willing to buy back. From the perspective of the industry distribution of repurchase, the top three industries for the amount of A-share repurchase in 2018 were household appliances, chemicals, and pharmaceuticals. The repurchase amounts were 9.01 billion yuan, 8.37 billion yuan, and 6.03 billion yuan. The bank repurchase amount is 0. The top three industries for repurchase amount/cash dividends are household appliances, media, and computers, with the proportions being 46%, 42%, and 39%, respectively. The distribution of the repurchase industry is consistent with the previous analysis and is closely related to the attributes of the company. Industries with more downstream private enterprises, such as household appliances, media, and computers, are more willing to repurchase, while industries dominated by state-owned enterprises, such as banking, steel, and transportation, are willing to repurchase. Weaker.


New model: repurchase + convertible bonds may become listed An important model for companies to boost stock prices and refinance

The market pays more attention to the repurchase behavior of listed companies, while ignoring the relaxation of the repurchase system, which makes the repurchase of listed companies match other behaviors. Produce a greater chain reaction, and the repurchase + convertible bond model is particularly worthy of attention.

The repurchase + convertible bond model opens up space for convertible bond financing and cash repurchase. The Securities Regulatory Commission issued "Questions and Answers on Issuance Supervision-Regulatory Requirements for Guiding and Regulating the Financing Behavior of Listed Companies" on February 17, 2017, clarifying that the interval for listed companies to apply for additional issuance, allotment, and fixed increase should not be less than 18 months , And the issuance of convertible bonds is not subject to this restriction, making convertible bond financing rise again. The repurchase system is relaxed, cash repurchase is regarded as cash dividends and support for the issuance of convertible bond repurchase, further opening up the space for convertible bond financing and cash repurchase. For listed companies, the repurchase + convertible bond model has five advantages:


1) The dilution of original shareholders' equity is weakened. Repurchase stocks can be treated as treasury shares, and the accounting treatment at the time of share conversion will not increase the total number of shares on the book, and will not dilute the original shareholders’ equity;

(2) Repurchase will help boost Issuance and conversion of underlying shares and convertible bonds. The new repurchase regulations clarify that while share repurchase can apply for the issuance of convertible bonds, the repurchase will boost the underlying shares and increase the probability of converting convertible bonds into shares, which is also conducive to the issuance of convertible bonds. For companies that have issued convertible bonds, repurchasing to boost stock prices will also help prevent listed companies from triggering repurchase clauses to increase capital outflow pressure;

(3) Repurchases will help listed companies to achieve convertibility.Bond issuance requirements for cash dividends; (4) Through convertible bond financing repurchase, the cash outflow caused by cash dividends of listed companies can be reduced, and liquidity can be supplemented; (5) Convertible bonds can be combined with repurchase to take advantage of the tax difference and obtain tax Shield effect.

The allocation value of convertible bonds is highlighted in 2019, and the fund end supports the repurchase + convertible bond model. Convertible bonds have both equity and debt properties. They are a type that can be attacked and defensive in the allocation of large-scale assets. The value of allocation is prominent in the transition phase of economic recession towards recovery. Since 2003, in the first three rounds of A-share bear markets, the Shanghai Stock Exchange Convertible Bond Index bottomed out before the Shanghai Composite Index. This round of the Shanghai Stock Exchange Convertible Bond Index hit a low point in June 2018, while the Shanghai Composite Index continued to decline, and the convertible bonds performed better than equity. According to Wind data, the GDP growth rate is expected to decline quarter by quarter in 2019, and the downward trend of PPI will deflate again. The decline in long-term interest rates and equity valuations in 2018 has reflected part of the economic recession and passive easing expectations. It is expected that the decline in 2019 will enter the middle and late stages, and the value of convertible bond allocation will become prominent. While the repurchase of listed companies boosts stock prices and safeguards shareholders’ rights, it is also conducive to triggering the forced conversion of convertible bonds more quickly and increasing the income of convertible bond investors.

There are already listed companies trying to repurchase + convertible bonds plan, waiting for the implementation of specific cases . According to the announcement of listed companies, Tempus International, Dongxu Optoelectronics, Qixiang Tengda, Oriental Fashion, etc. have issued plans for repurchase + convertible bonds. The convertible bond financing is used for repurchase, replenishment of liquidity, loan repayment, Investment expansion, etc. The five companies' proposed financing repurchase amount/net profit exceeded the cash dividend rate. Listed companies use convertible bonds to raise funds, break capital constraints and repurchase to boost their stock prices, and improve their operating conditions, such as replenishing liquidity, repaying loans, and investing in production expansion. The primary and secondary linkages are more flexible. Currently, among the five companies, Oriental Fashion’s application for the public issuance of A-share convertible bonds has been accepted by the China Securities Regulatory Commission, waiting for specific cases to land.

The key to grasp can be transferred A-share listed company that may link debt and repurchase. According to Wind data, according to convertible bond issuance conditions: (1) The weighted average return on net assets of the last three fiscal years is not less than 6%, (2) the cumulative distribution of profits in cash in the last three years Not less than 30% of the annual distributable profit realized in the last three years. (3) The accumulated bond balance shall not exceed 40% of the audited net assets of the previous year. If the net assets data is blank , Then eliminated, screening out 1614 only the subject matter that meets the conditions for the issuance of convertible bonds. We further screened out 665 companies that had repurchases from 2012 to 2018. The repurchase + convertible bond model may become an important model for A-share listed companies' primary and secondary market linkages, focusing on A-share listed companies that may be linked with convertible bonds and repurchase.


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