Seeking a bigger pie
THE decision by the Shanghai State Property Management Office to crack down on rights issues by listed companies brings into focus a tricky subject.
When state investors in listed companies sell their rights, does that represent a drain of state assets? Whichever way you look at it, it is a leak of state resources.
The rights are signed away to individual shareholders for a pittance.
In most cases, the transfer fee works out to no more than 20 fen, or 0.20 yuan, a share.
The result is the state's shareholding in the listed company decreases in proportion to the rights it sells to private investors.
The state has a good reason to be worried.
Should that mean that listed companies should not issue rights simply because state shareholders do not have the money to afford to pay for them? The four new qualifying rules seem to suggest this is the case, which is unfortunate.
There is certainly a case for applying stricter rules to rights issues because too many listed companies see such exercises as a cheap and expedient way to raise cash.
After raising the money, some use it to play in the stock and futures markets for speculative gains.
Such abuses should not be tolerated, and the authorities have every reason to be tough with these companies.
That does not mean the crackdown on rights offerings should be applied across the board.
There is a case for treating differently corporate citizens with a good track record and who have been responsible and responsive to individual and state shareholders.
Such companies are few and far between and deserve support.
If they can expand their earnings and job opportunities through good use of public funds, why deprive them of the opportunity to do better? It would be unfortunate if a solid company could not expand because it could not issue rights - the reason being because its state shareholders did not have the money to buy them.
Public money properly and productively used by listed companies can expand the corporate pie for every one, including state shareholders.
If a marginal dilution of state interest is the price, it is well worth it.