OREANDA-NEWS. September 19, 2011. KMG EP announced that a share buyback programme has been approved by its board of directors. The company will purchase its common shares listed on the Kazakhstan Stock Exchange (KASE: RDGZ KZ) and GDRs listed on the London Stock Exchange (LSE: KMG LI) up to an aggregate amount of USD 300 mn. The programme will start after a separate announcement in the near future and will end on 31 Dec 2012. The shares and GDRs will be acquired at market prices.

The board believes this is an effective use of cash resources as the current market prices of KMG EP’s shares and GDRs are below their fair value. Assuming that the company’s major shareholder, NC KMG (61% of shares outstanding) and China Investment Corporation (11%) do not participate, the buyback programme could cover up to 21% of free float, on our estimates.

An earlier buyback programme involving the company's common shares and GDRs was implemented between 24 Nov 2008 and 31 Oct 2009. The company purchased 110,632 common shares and 8,699,697 GDRs for about USD 148mn at average prices of KZT12,968.5 per local share (equivalent to USD 15/GDR) and USD 15.14 per GDR.

In February 2010, the company launched a preferred share buyback programme through a sequence of specialized trades on KASE (valid until 31 December 2011). KMG EP has already repurchased over 1.8mn preferred shares for an aggregate amount of KZT34.65bn (USD 237mn) at an average price of around KZT18,381/share (equivalent to USD 21/GDR).

Bottom line

In our view, KMG EP’s new buyback programme sends a positive signal to shareholders.