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The Guardian: BP’s buyback boost begins to fizzle

The Guardian: BP’s buyback boost begins to fizzle

Neil Hume

Tuesday August 10, 2004

Oil group BP lagged behind rival Shell yesterday amid fears that Britain’s biggest quoted company will be forced to stop buying its own shares this month.

BP has one of the most aggressive buyback programmes in the London market. It has acquired 380m shares at a cost of $3.25bn (£1.8bn) this year and since reporting interim figures at the end of last month stepped up the size of its purchases from 5.5m to 11m a day.

Along with the buoyant oil price, those buybacks have helped to support the BP share price, which last week hit 520p – its highest level since August 2002.

Analysts at German investment bank Dresdner Kleinwort Wasserstein believe, however, that BP is contractually obliged to put the programme on ice for 30 days from August 21.

This is because during that period BP is due to make the first of three annual payments of $1.25bn in stock to Alfa Group and Access-Renova, the partners in its Russian joint venture, TNK-BP.

Dresdner reckons the enforced pause in the buyback programme could not come at a worse time for BP because the consortium of banks which are to take delivery of the stock on behalf of Alfa and Access will try to hedge their exposure.

This could see the banks short about 7m BP shares each day over the 30-day period.

“We believe that BP shares have benefited from the recent step up in the buyback programme. This could reverse if we see the recent 11m daily withdrawal turned into a 6.7m injection,” Dresdner said.

BP shares closed 1.75p higher at 501.25p, while Shell climbed 5.25p to 394p, the day’s best performance by a blue chip stock.

In the wider market, concerns about the US economy and the outcome of today’s meeting of the US Federal Reserve saw leading shares extend their losses over the past two sessions to nearly 100 points.

The final scores showed the FTSE 100 index down 23.5 points at 4314.4. The FTSE 250 dropped 51.9 points to 5834.4, while the FTSE Small Cap index eased 11 points to 2436.0.

Trading volumes were lacklustre with about 2.4bn shares changing hands as many investors refused to play ball ahead of the Fed meeting, at which the chairman, Alan Greenspan, is expected to increase rates by a quarter of a point.

In the bond market, gilts also closed lower, unsettled by a report showing industrial pricing pressures building up. The benchmark 10-year gilt closed at 100.320, yielding 4.959%.

http://www.guardian.co.uk/business/story/0,,1279616,00.html

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