Buybacks, holding increases to buoy stock prices

BEIJING -- China's listed heavyweights and their major shareholders are buying back shares from a sagging securities market or increasing their holdings in order to stabilize stock prices.

Analysts expect similar moves from listed firms whose stocks are undervalued amid a persistent bearish mood, as investors are worried over the economy's prospects.

Baoshan Iron & Steel Co Ltd, China's biggest listed steelmaker, said Monday it paid 69.1 million yuan ($10.9 million) to repurchase nearly 15 million shares, or 0.09 percent of the company's issued shares, from the open market on Friday.

It was the first stock repurchase by a blue-chip firm on the mainland yuan-denominated A-share market since 2008.

Anhui Jianghuai Automobile Co Ltd, a car producer based in east China's Anhui province and listed in Shanghai, announced on Sept 14 it expects to buy back around 4.48 percent of its issued shares.

To accomplish the same goal of shoring up underpriced stocks, eight listed state-owned companies administered by the central government have seen their major shareholders increase holdings since August, according to financial data provider Wind Information.

Those shareholders have bought a total of 342 million shares worth over 1.5 billion yuan from the marketplace, according to the Wind Information data.

Hu Ruyin, a capital market researcher at the Shanghai Stock Exchange, said the practices should be encouraged amid the market's downturn.

"In the current market environment, it's definitely a good thing to repurchase or increase holdings of shares of listed firms, especially large caps and blue chips, whose stock prices are underrated or even lower than their net asset value per share," Hu said.

The price-to-book ratio for Baosteel was only around 0.71 on Monday, meaning its share price was well below the net asset value per share.

As of Sunday, 82 firms listed in Shanghai and Shenzhen had seen their share prices fall below the net asset value per share, with most of them in the steel, construction, banking and automobile sectors.

China's benchmark Shanghai Composite Index has tumbled since May, as investors have been jittery about the slowing economy and the downbeat business performance of listed companies.

The index closed at 2,024.84 points on Friday, its lowest level in 43 months. On Monday the Shanghai index further dipped to 2,005.26 points, the lowest since early Feb 2009, and then it rebounded to close at 2,033.19 points with a daily increase of 0.32 percent.

The combined market value of listed firms in Shanghai and Shenzhen has shrunk by 993.3 billion yuan so far this year, nearly equaling the total net profits of all listed firms in the first half of the year, according to Wind Information.

Share repurchases and holding increases can render an immediate effect on stabilizing share prices, said Zhao Qingming, a financial expert with the University of International Business and Economics.

The moves will also strengthen majority shareholders' control over company development and help firms achieve healthy growth, he said.

However, Hu urged strict regulation over the practices to prevent insider trading, speculation and interference in independent market pricing.

The amount of shares actually repurchased by some companies was much smaller than the announced scale, leading to abnormal fluctuations in share prices and hurting investors' interests, he said.