China tightens share-offering rules for listed companies in bid to avoid issuance glut and boost markets
China has tightened the rules for listed companies seeking to raise funds using the equity route, in what is seen as another bid to limit supply of new shares and support stock prices in a sluggish market.
Restrictions will be imposed on companies whose shares trade below book value or their IPO offer prices, the Shanghai and Shenzhen stock exchanges said on their websites on Wednesday night. A newly imposed limitation now requires a gap of at least 18 months between two bouts of refinancing by a company with two consecutive years of losses.
Meanwhile, listed companies with a high proportion of financial investments will be asked to limit their share offerings, and companies with refinancing plans will be directed to use proceeds from equity sales for investing in projects linked to main businesses, to prevent disorderly investments across different sectors, the statement said.
The curbs, which primarily target share sales and placements by publicly-traded companies, are part of the latest efforts by financial regulators to bolster confidence in China’s US$9.6 trillion stock market, the world’s second largest. The new regulations follow an order issued by the China Securities Regulatory Commission (CSRC) in August aimed at slowing down the pace of initial public offerings (IPOs).
“It will help to strike a balance between investments and fundraising to ensure stability in the secondary market,” said Wei Wei, an analyst at Ping An Securities. “In the long run, that will be conducive to keeping good order in the capital market and guide resources to good-quality, listed companies.”
The arrangement would help improve the quality of listed companies, promote listed companies to focus on their main businesses and boost market capitalisation, the Shanghai and Shenzhen exchanges said in separate statements.
China’s top fund managers lend support for stocks amid rampant foreign selling
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A flurry of steps taken by the government, including a reduction in stamp duties, restrictions on short selling and state-directed buying of banking stocks and exchange-traded funds (ETFs), have failed to lift sentiment so far. The CSI 300 Index of Chinese onshore stocks has dropped 6.7 per cent this year, placing it among the worst-performing benchmarks in Asia.
Stocks of listed companies need to trade above their book value and offer price in the 20 trading days preceding the refinancing share offering. Refinancing for projects of strategic importance and stock issuances for funding bailouts, business transition or introductions of strategic investors will be exempt from the new rules.
The combined value of additional share sales, rights offers and placements by mainland-listed companies amounted to 402.2 billion yuan (US$55.2 billion) year to date, compared with 603.3 billion yuan in the first 11 months of 2022, according to Bloomberg data.
The biggest deal of the year was from China Southern Airlines, which said in May that it would raise 17.5 billion yuan via a private placement limited to 35 investors, including its parent company. Funds would be used to expand its fleet and replenish capital.
