Span is the latest in a not-so-short line of companies listed on the Zagreb Stock Exchange that are increasingly buying back their own shares. In mid-August, 500 shares were purchased, which is 0.0255 percent of the company’s share capital. Prior to that, the company already owned 19,830 of its own shares, which accounted for 1.0117 percent of the share capital, and after the latest purchase, it owns a total of 20,330 of its own shares, or 1.0372 percent of the share capital.
Podravka acquired an additional 500 of its own shares in June in two tranches, after which the company’s treasury account stands at 108,834 own shares, or 1.528567 percent of the share capital.
Zagrebačka banka, which is paying out the largest dividends in its history this year (over four billion kuna or 531 million euros will be paid to shareholders in May and October), plans to buy back up to 120,000 of its own shares by the end of the year, for which it will allocate a maximum of 1.3 million euros, mainly for employee bonuses in the coming years.
Information about the purchases of own shares on the Zagreb Stock Exchange is published almost daily, with several companies leading the activity whose shares are primarily traded. This is partly due to the programmatic buyback of own shares, which is implemented for various purposes (for example, rewarding managers/employees, ESOP programs, improving capital structure).
However, treasury shares are often perceived as an alternative to dividends, which certainly applies to Hrvatski Telekom, which has been practicing share buybacks for years. Under the currently valid Share Buyback Program (from 2021), the company conducted the largest share buyback in its history last year. The company bought 980,000 shares worth as much as 180.4 million kuna, which is 81 percent more than the previous year. In the first quarter of this year, the pace has slowed down. An additional 85,299 shares were purchased for which 2.1 million euros were paid.
Tomislav Bajić, an investor relations expert at Hrvatski Telekom, says that acquiring shares is a standard capital allocation practice in the business world. – Since 2017, HT has started buying back its own shares, adding another instrument to its capital allocation. This approach fits into our broader business strategy, which relies on regular dividends, further emphasizing our commitment to creating value for shareholders. The goals of the share buyback are multiple. First of all, it provides concrete benefits to all HT shareholders, complementing the standard dividend payout. This creates an additional opportunity for returning funds to shareholders. Secondly, this approach contributes to improving the capital structure of our company, creating additional balance in the financing structure. Thirdly, acquiring own shares allows for additional employee rewards, explains Bajić.
From Span, they briefly state that their Share Buyback Program is implemented with the aim of disposing of shares within the ESOP program, rewarding members of the Management Board, employees of Span and related companies, potential acquisitions of companies, and for all other purposes that are as such foreseen and permitted by the applicable legislation of the Republic of Croatia, in accordance with the decision of the General Assembly of the Company dated June 13, 2022.
No one controls the implementation of the law
Thus, apart from being a kind of substitute for dividends and as a reward for employees and/or ESOP, own shares are also purchased as an instrument of influence on the company’s capital structure and as an instrument of influence on the shareholder structure. However, in order to protect the principle of preserving the share capital, the acquisition of such shares is specifically regulated, more precisely regulated by the Companies Act. Namely, the acquisition of own shares is a sensitive issue, as the trading company thus becomes its own member, which is contrary to the principle of separation of members and the company. The law states that own shares should only be acquired in exceptional cases, as their unlimited and unconditional acquisition would lead to the erosion of share capital. Therefore, all legislations worldwide protect the interests of shareholders, i.e., capital owners, by adopting appropriate regulations.
Lawyer Mićo Ljubenko explains that regarding the acquisition of own shares, the Companies Act states that it can be for a maximum period of five years and that it can be a maximum of ten percent of the capital.
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– Also, Article 233 of the Companies Act stipulates that conditions for acquisition can be elaborated, but the law simultaneously states eight reasons when shares can be acquired without a decision of the assembly. As for the usual reasons, I would say that the two most common are. First, companies have an interest in acquiring their own shares when a shareholder wants to sell but either has no buyer or the buyer is not acceptable, and then they go for the safe option that the shares remain in the company, and the shareholder has still sold, as a shareholder cannot be fundamentally prohibited from selling their property.
Secondly, companies in the form of shares have a usual form of capital as bonuses are given to management through so-called option shares. In practice, there is no reliable mechanism for any control over compliance with the Companies Act regarding the ten percent limit and five years. Precisely because of frequent violations of the law, without control and sanctions, the Companies Act has been changed, allowing the holding of shares for five years, whereas it was previously one and a half years. Here, the law is unclear whether a company can hold, for example, shares indefinitely up to ten percent, as it is difficult to track which shares were acquired within five years and which were disposed of, but ‘up to 10 percent’ is constantly respected. The implementation of the law in this part is not carried out by auditors or the court register; they see all this and could react, but they do not do so because it is not legally prescribed that they must react. The implementation of the law in this part is done only by those companies that are listed on the stock exchange, and those are negligibly rare – concludes Ljubenko.
