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Regulator details State share reform

(China Daily)
Updated: 2005-09-06 11:34

China's 1,300-odd listed companies have got the green light to deal with the overhang of State shares after the country's stock market regulator unveiled a detailed circular over the weekend.

Along with the guidelines issued earlier to extend the split-share reform to the whole market, the circular provides companies listed on the A-share market clear guidance on share mergers.

The circular contains many amendments to the draft document the China Securities Regulatory Commission (CSRC) released on August 26 to seek public opinion.

The circular makes it easier for the reform to be efficiently handled, the CSRC said in an announcement to the press.

They key points in the circular are:

Approval of only two-thirds of holders of non-tradable shares is needed to launch the reform. In the pilot project, all the holders of non-tradable shares had to give their consent.

The time taken for a company to complete the reform process has been reduced to 30 days but proposals cannot be changed once stock trading is resumed.

There are specific measures to ensure holders of non-tradable shares fulfil their promises in the reform contracts to retail investors.

Listed companies are required to provide guarantees to holders of tradable shares.

Holders of non-tradable shares are not allowed to transfer their shares to others if they have not completed their pledges unless the transferee is willing and capable of doing so.

Companies or sponsors failing to fulfil their obligations face CSRC strictures or even prosecution.

China launched the pilot programme at April-end to address the split-share issue, which experts blamed for the stock market slump and a distorted stock pricing system. Two batches of 46 pilot companies floated State shares by the middle of last month.

The share prices fluctuated wildly during the process but have finally become stable after the renmibi appreciation.

The Shanghai composite index yesterday climbed 0.62 per cent to 1196.22 points, close to psychological barrier of 1200 points. This is about 4 per cent higher than in late April when the pilot project began.

From the beginning of last month, qualified foreign institutional investors and domestic fund managers have been chasing blue chip bargains.

More international investors are showing an interest in China's A shares as valuation on select companies are finally beginning to look reasonable, said Ronald Wan, executive director of SBI E2-Capital, a Hong Kong-based investment bank.

But Wan said while the conversion of non-tradable shares was important it was but only one part of capital market reform. Further effort is necessary to improve corporate governance and transparency, and more large-cap and private sector companies need to be drawn to the A-share market.

"China's stock market reform is absolutely in the right direction." said Lorraine Tan, director of research, Asia-Pacific Equity Research Service of Standard & Poor's.

However, she said, people have some concerns over the way the reform is being done, especially the different treatment between H and A shareholders.

The regulator limited the reform to the A-share market and excluded B and H shares. But the flotation of State-held A shares will dilute the value of the companies' shares and B and H shares will lose value, she said.