China Southern faces curbs on stock trading
Exchanges crack down on firms that fail to carry out reform of state shares
China Southern Airlines, the largest mainland carrier by fleet size, faces tighter trading limits on its China-traded shares from Monday as exchanges act against firms that have failed to begin share reforms.
As of January 8, the 18 Shanghai-listed and 22 Shenzhen-traded companies that have not started share restructuring ordered by the government will be allowed to trade only within a 5 per cent range from the previous trading day, down from 10 per cent.
Mainland-listed firms with state-owned shares have to give incentives in the form of shares, warrants or cash offering to get individual shareholders' approval to make the state-held shares tradable.
China Southern Air Holding, which owns 50.3 per cent of the carrier, said it had not yet found a way to carry out the reforms.
It has little room to reduce its holding since China Southern is a state-controlled air transport company, recommended by the Civil Aviation Administration of China.
That is, the parent must maintain its existing controlling stake under the present regime, according to a document filed by the company at the Shanghai stock exchange's request.
China Southern said its parent, burdened by debt, also lacked the funds and flexibility to launch the programme.
'It's more a policy matter than a financial engineering issue,' a mainland investment banker said.
He said China Southern could only carry out the share reform if the government offered financial aid to its parent.
'But it will set a bad example for other state-owned companies, giving them the impression that the government will bail them out whenever they are in trouble,' the investment banker said.
As of yesterday, 1,303 groups representing 97 per cent of A-share firms were executing or had completed share reforms by offering shares, cash or warrants to individual shareholders to win their consensus on converting state-owned shares into tradable stock.
Shares of China Southern gained 4.09 per cent in Shanghai yesterday to 4.26 yuan. Its Hong Kong-listed shares fell to HK$3.25 from HK$3.27.
Trading volume in Shanghai surged to 177 million shares, 5.6 times the average trading volume for the past 12 months, as mainland investors sought the stock before the new rule could shorten periods during which China Southern shares could trade.
The China Securities Regulatory Commission and the two mainland stock exchanges, by implementing the new rule, want to encourage companies that have yet to undertake the share reform to start the programme as soon as possible.
The regulator and the exchanges will monitor the progress of the reform from time to time, according to the exchanges' websites.
The commission also wants to help investors recognise the higher risk of trading in stocks that have not undergone reform.