China introduces rules to stabilise stock market
Sunday, 8 July 2007
SHANGHAI, July 7 (AFP): China announced new rules Friday that would restrict how companies' state-held shares are floated on the nation's bourses to prevent a flood of stock from destabilising the market.
The rules released by assets and securities regulators are meant to restrict major shareholders from divesting large stakes in a short period of time or at prices well below market levels.
A statement published along with the new rules said that these measures will "prevent holders of state shares from making large scale stock sales affecting the stability of the markets."
Companies will require regulatory approval for the sale over a period of three years of state-owned shares of more than 5.0 per cent of a listed company's outstanding stock, the regulators' joint statement said.
Approval will also be needed for the transfer of a smaller amount of shares if the total is sufficient to change who controls the listed company, said the China Securities Regulatory Commission and the State-owned Assets Supervision and Administration Commission.
The rules, which took effect July 1, also set a limit on the price of state shares sold off the market, requiring them to be priced at 90 per cent of the average weighted price of the last 30 trading days.
The government also stated that there must be public disclosure of the transfer of such shares, and that the intent of the regulations is to avoid "private deals."
Market regulators and investors had long feared that sales of large volumes of state-owned stock would send market prices tumbling.
The reform of the overhang of shares owned by the government began in earnest in April 2005, with companies generally offering up compensation to public shareholders, usually in the form of free bonus shares.
Most of China's more than 1,400 companies have now completed plans to allow the gradual sale of state held stock, and after an initial lock-up period many of these firms are now nearing the time when such share sales can begin.
But the flotation of such massive amount of stock could again heighten investor worries that their holdings will be diluted, as happened in 2001 when news of the state share reform sent exchanges into a four-year slump.
The rules released by assets and securities regulators are meant to restrict major shareholders from divesting large stakes in a short period of time or at prices well below market levels.
A statement published along with the new rules said that these measures will "prevent holders of state shares from making large scale stock sales affecting the stability of the markets."
Companies will require regulatory approval for the sale over a period of three years of state-owned shares of more than 5.0 per cent of a listed company's outstanding stock, the regulators' joint statement said.
Approval will also be needed for the transfer of a smaller amount of shares if the total is sufficient to change who controls the listed company, said the China Securities Regulatory Commission and the State-owned Assets Supervision and Administration Commission.
The rules, which took effect July 1, also set a limit on the price of state shares sold off the market, requiring them to be priced at 90 per cent of the average weighted price of the last 30 trading days.
The government also stated that there must be public disclosure of the transfer of such shares, and that the intent of the regulations is to avoid "private deals."
Market regulators and investors had long feared that sales of large volumes of state-owned stock would send market prices tumbling.
The reform of the overhang of shares owned by the government began in earnest in April 2005, with companies generally offering up compensation to public shareholders, usually in the form of free bonus shares.
Most of China's more than 1,400 companies have now completed plans to allow the gradual sale of state held stock, and after an initial lock-up period many of these firms are now nearing the time when such share sales can begin.
But the flotation of such massive amount of stock could again heighten investor worries that their holdings will be diluted, as happened in 2001 when news of the state share reform sent exchanges into a four-year slump.