Priority loans fail to excite investors
There is little to get excited about following the issue of the list of 300 companies by the Chinese Government to receive favourable loans in the second half of the year.
Crosby Securities contends the hoop-la surrounding the priority loan schemes might be misplaced.
'We question whether the listed companies involved will actually derive any benefit ahead of cash-strapped siblings,' says the brokerage.
Although the scheme is positive in the long-term, there is very little to get excited about this year.
For the H-share companies listed it is actually the parent that has been selected as the recipient of the loans. This might affect the total that will actually benefit the listed entities.
The brokerage points out, for many of the companies listed under the priority loan scheme, cash is not actually a problem. For instance, Maanshan Iron and Steel was in a net cash position last year, but still profits nose-dived 94 per cent.
The problem for many of the companies on the list is sales. Supplying more cash to them will only serve to pile up inventory.
For many industries, such as glass, the problem is oversupply relative to demand, says Crosby.
Watch out for receivables also. With potential funding worries alleviated, the companies may be less cautious in granting sales to customers which cannot pay on time, if at all.