PT Danayasa Arthatama (SCBD) Tbk, a company controlled by Tommy Winata and Sugianto Kusuma, has kicked off a shares buyback program. SCBD, developer of Sudirman Central Business District (SCBD), has appointed PT Onix Securities to manage the program, where SCBD sets aside up to Rp797 billion. This is one of the most bizarre shares buyback program in the country. Why?

SCBD argued the shares buyback program is needed to support the stock market, which has dropped significantly in the past few months. “The purpose of the buyback is to help stabilizing the share price on IDX,” SCBD argued in a statement Friday (Jan 10).

Most issuers launch buyback program to support their falling stock price. But, that’s not the case of SCBD. The stock surged from less than Rp1,000 in May 2013 to Rp2,700 on November 27, 2013. Why would SCBD buyback the stock if it gained more than 170%?

SCBD’s EPS as at September 30, 2013 was Rp520. That means the market price of Rp2700 reflected PE multiple 4. It is true that SCBD’s valuation was very low, but one should also remember that 2013 profit was mainly because of ‘extraordinary profit’ from the divestment of one lot of land for US$184 million.

Buyback means ‘support’ because other shareholders dump the stock, right? Well, in the case of SCBD, who had dumped the stock? Its daily average trading volume was three lots (1,500 shares). From whom SCBD would buyback the shares?

As at September 30, 2013, PT Jakarta International Hotels & Development (JIHD) Tbk, controlled by Tommy Winata and Sugianto Kusuma, controlled 82.41% shares (2.737 billion), while public held 17.59% or 584.34 million shares.

Buyback shall mean buying the stock from the market (17.59% shares). The question, of course, who holds the shares, which will be benefited from the program? At Rp2700 per share, the budget of Rp797 billion will be enough to absorb 295 million shares or about half of the ‘freely floated shares’ of SCBD. Why would JIHD as controlling shareholder agree such buyback program?

Tax evasion?

Well, SCBD booked net profit of Rp1.73 trillion in nine months of 2013, ballooned from Rp24 billion in the corresponding period of 2013. Portion of the net profit will be paid as dividend to shareholders, including JIHD. Say that 50% will be paid as dividend or about Rp850 billion. Final tax for such dividend will be around Rp85 billion (10% of dividend paid out). But, if you spend Rp850 billion to buyback shares, tax payment will only 0.1% of Rp850 billion or about Rp850 million.

SCBD booked huge profit in nine months of 2013 because of the sale of Lot 10 KNTS at SCBD for US$184 million to Li Ka-shing (HK tycoon).