Fast-track share sale plan raises concerns of more market turmoil
Beijing's plan to allow companies hit by the Sichuan earthquake to fast-track stock listings and refinancing plans is under fire for potentially undermining already vulnerable mainland markets.
Shang Fulin, chairman of the China Securities Regulatory Commission, said his agency would consider companies whose operations were hit by last month's earthquake as exceptional cases when reviewing their share sale applications.
However, the plan published in an article on the CSRC website yesterday has raised investor fears that an influx of new share sales will weigh on the already weakened market.
'Senior officials are now confused,' said a CSRC division chief, who did not wish to be named but who indicated the regulator had lost its grip on the volatile market.
The securities regulator, struggling to prevent a sharp fall after the quake hit Sichuan on May 12, has ordered mutual funds not to sell shares twice in the past three weeks.
The CSRC source said it was considered 'politically correct' to loosen controls on share sales by quake-hit firms but market watchers believe speeding up listings may actually spark a further slide in the market.
Mr Shang said the fast-tracking of share sales would help speed up reconstruction of damaged plants and factories by giving companies easier access to funds.
But analysts said investors were likely to be leery of buying into such companies because of concerns about asset quality.
Among the major corporate victims of the quake has been Dongfang Electric Corp, which said that its facilities at Mianzhu were seriously damaged. Mr Shang inspected the plant recently and promised to help it resume production as soon as possible. Dongfang Electric's mainland-traded shares have tumbled 23 per cent since the quake.
Analysts said planned share offerings by quake-battered companies could amount to several billion yuan, with at least dozens of firms likely to benefit from the policy.
'Investors are baffled because obviously what the CSRC is doing is hurting their interests,' said Essence Securities analyst Liu Jun. 'The share sales by these companies will result in a severe capital strain in the already sluggish market.'
The benchmark Shanghai Composite Index declined for a fourth consecutive session yesterday, closing at 3,329.67, down 21.975 points or 0.66 per cent.
The index is now only 51.34 points higher than the level it fell to in late April before Beijing intervened to lift sentiment through a massive cut in stamp duty taxes.
Yesterday, turnover on the Shanghai Stock Exchange hit a 11/2-year low as investors believed the downward momentum would continue. The trading value dwindled 20 per cent from a day earlier to 43.4 billion yuan (HK$48.87 billion), the lowest since December 15, 2006.
