Regulator waives its approval for stock buys
The mainland's securities watchdog is encouraging major shareholders to buy more shares in their listed firms as a way to consolidate their control, the regulator's latest move to bolster the weak market.
The China Securities Regulatory Commission (CSRC) has published a draft rule that allows shareholders who own more than 30 per cent of a listed firm to increase their stake by 2 percentage points a year without having to secure its approval.
'The scrapping of the approval procedure will largely boost major shareholders' interest in buying additional shares of the company,' the CSRC said.
Most of the listed firms' controlling shareholders are state-owned.
The CSRC's remarks are seen as a clear message to these state-owned shareholders that shares are undervalued and that now is a good time to boost their holdings.
Under the mainland's securities laws, a shareholder that owns at least 30 per cent of a listed firm must make a general offer to other shareholders if it wants to buy more shares.
In 2008, the CSRC exempted major shareholders from making the offer to other shareholders if they increased their stakes by no more than two percentage points within a year.
However, the additional share purchase was subject to regulatory approval.
By phasing out the approval process, the CSRC is hoping that more cash-rich major shareholders will buy shares amid the market downturn, analysts say.
The benchmark Shanghai Composite Index, one of the world's worst-performing indices in the past two years, lost 21.7 per cent last year after a 14.3 per cent slump in 2010. 'A large shareholder's move to boost its stake in a listed arm would reflect its confidence in a company when the share price has fallen below a reasonable level,' the CSRC said.
'In addition, the move would help keep the capital markets stable.' West China Securities trader Wei Wei said the problem 'lies in whether the controlling shareholders would agree. It also shows the securities regulator has no other incentives to boost the weak market'.
Previously, the CSRC would use its clout to underpin the market by suspending initial public offerings to curb fresh supply of shares or approving the establishments of new mutual funds to boost liquidity.
However, the CSRC has yet to take similar measures during the current market downturn.
More new initial share offerings are expected to be approved by the CSRC because companies are eager to raise capital due to Beijing's monetary tightening.
