It is hard to imagine why shareholders would cheer when a company overpays for an asset. On Tuesday, Hong Kong and China-listed communications equipment maker ZTE said it had earmarked up to $160m for a share buy-back. The (China-listed) A shares opened 10 per cent higher — the maximum upside limit — while the (Hong Kong-listed) H shares opened 31 per cent higher.
The issue is not the buyback per se, although these benefit holders and sellers unequally. Nor is it that the shares are not especially cheap: before Tuesday’s pop, both A and H lines traded around their five-year average multiples of forward earnings. It is the choice of which line to buy. ZTE will buy back A shares, which are a third pricier than H shares.
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