China's largest steel maker Baoshan Iron & Steel Co (Baosteel) launched a plan last Tuesday to repurchase up to 5 billion yuan ($788 million) of the company's shares, a move that many analysts believed could help temper investor confidence in the steel industry.
Yet market players should not let their enthusiasm run away from them, as the company is unlikely to spend the entire 5 billion yuan it mentioned. Instead, it will probably shell out just a fraction of this amount as an expedient to hoist its share price.
It is just not practical for Baosteel to spend 5 billion yuan on a repurchase plan when its capital is running dry thanks to a recent profit slump. Also, 5 billion yuan is just the upper limit of its proposed buy-back program. Even if the company spent 500 yuan repurchasing its shares, no one could accuse Baosteel of breaking its word. The excitement Baosteel has been able to stir up surrounding its stock will likely come very cheaply indeed.
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