Challenger Financial Services Group Ltd said it would buy up to 10 per cent of its issued capital, currently worth $130 million on the market, giving its battered shares a boost.

The Packer family-backed funds manager last month increased its power to launch a share buyback by agreeing to offload its underperforming financial planning business to AXA Asia Pacific Holdings Ltd for $150 million, with the sale confirmed today.

Challenger also took AXA’s annuities business for a net consideration to AXA of $50 million.

When the AXA deal was announced, analysts upgraded Challenger stock and suggested a buyback could be on the cards, sending the group’s shares up almost 10 per cent on June 6.

Investors today pushed Challenger shares up another 11 cents, or 5.37 per cent, to $2.16.

“The company now has a low net debt position, a strong capital surplus in its prudentially regulated life insurance company and strong operating cash flows,” Challenger said.

“This has created the opportunity to commence an on-market share buyback programme from July 21.”

It has been a tough 12 months for the Sydney-based group.

This time last year its shares were surging on a prolonged bull market and takeover rumours. There was even talk of Challenger buying infrastructure and property assets worth $5 billion each.

Since then, one of its listed funds has offloaded assets to reduce its gearing and Challenger shares have plunged 67 per cent from a record close of $6.55 on October 3.

Apart from investor distrust of infrastructure investment models that source capital from debt and third-party investors, the market is also worried a freeze in mortgage securitisation markets could hurt Challenger’s mortgage management business.

Challenger has brought down its satellite funds’ gearing levels substantially and is buying mortgage aggregators, which are immune from the freeze in secured debt markets.

The company today reiterated its second half dividend guidance of 7.5 cents per share.

Last month, Challenger forecast a sharp fall in fiscal 2008 profit to $20 million from $255 million, underpinned by unrealised mark-to-market losses from its listed satellite funds.

Pre-tax profit on an underlying basis is expected to rise by about 17 per cent to $270 million.

Challenger said today that the total number of shares it would buy would depend on market conditions and evaluated against other investment opportunities.

It has appointed Deutsche Bank to advice it on the capital management program.

AAP