Meituan may buy back 10% of its shares

Even though it has the green light for this move, a share buyback now might worsen the firm’s financial condition

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China’s on-demand delivery service provider Meituan-Dianping announced Monday before the market opened that a majority of its shareholders have granted its directors a mandate to repurchase up to 10% of the company’s issued shares.

However, an unnamed analyst told online news portal china.com.cn that this grant, which one of many resolutions made at Meituan’s annual general meetings, does not necessarily mean the company will buy back its shares in the short term.

Meituan booked an adjusted net loss of RMB 8.5 billion (USD 1.27 billion) in 2018, and a share buyback at this point might worsen its financial condition.

Normally, a company chooses to repurchase its shares at the market value to regain a higher portion of ownership and this tends to occur when share prices are not very high.

Meituan listed in Hong Kong in September, but it did not gain much enthusiasm from investors in the capital market in the remaining months of last year. Its stock price rose nearly 40%  since the start of this year, but it is now still below its initial public offering price of HKD 69 (USD 8.8).

Meituan opened at HKD 62.45 (USD 7.96), a little higher than the closing price of HKD 61.85 on Friday but slid slightly in the morning trading session.

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