Ray of hope for long-suffering B-share investors

Shenzhen bourse urges firms on slumbering market to voluntarily withdraw and relaunch with A shares

PUBLISHED : Monday, 13 August, 2012, 12:00am
UPDATED : Friday, 05 October, 2012, 7:02pm

The nation's securities regulator is taking an initial step towards ironing out the festering issue of the B-share market, offering beleaguered investors a ray of hope after a decade of waiting.

Song Liping, chief executive of the Shenzhen Stock Exchange, has said B-share companies would be encouraged to voluntarily withdraw the listing of the shares and relaunch A-share public offerings.

Her proposal follows a selling spree on the B-share market as one of the companies edged closer to a delisting.

"We will make an appropriate arrangement for B-share companies to return to the A-share market," Song was quoted by the official China Securities Journal as saying.

"Qualified companies don't have to go through the review procedure by the regulator."

This is the first time that a senior securities regulator has publicly aired views on the slumbering B-share market, amid growing calls for a merger of B and A shares.

The Shanghai Stock Exchange also said in a statement that those B-share companies that voluntarily privatise would be able to relaunch A-share initial public offerings (IPOs) without going through the lengthy application process.

A shares are yuan-denominated while B shares are traded in foreign currencies.

The China Securities Regulatory Commission (CSRC) created the B-share market in 1992 to help state-owned companies raise funds in foreign currencies.

But the market proved a failure as companies preferred to list on overseas exchanges to raise foreign capital, with the B-share market struggling to attract initial public offerings and funds.

In the past decade, there hasn't been a single IPO on the B-share market, where some 100 companies are traded.

The two exchanges' statements reflect Beijing's attempts to solve the problems confronting B shares. Thousands of domestic investors have been left licking their wounds following an unsuccessful liberalisation in 2001, when Beijing allowed mainland residents to trade B shares - originally slated for foreign investors only - with their own foreign currencies to boost liquidity.

The move triggered a buying frenzy by domestic investors, and created an easy exit for foreign funds and investors. But B shares are now trading at a huge discount to their A-share counterparts.

Former CSRC adviser Anthony Neoh once proposed merging B shares with A shares, but the plan was never implemented.

Sources close to the CSRC said senior officials were unwilling to pay much attention to the tiny B-share market because it affected only a small portion of the country's more than 100 million retail investors.

"Technically, it is not difficult to merge the B shares with A shares," Haitong Securities analyst Zhang Qi said. "Privatising and relaunching A-share IPOs is a feasible move."

There are more than 20 companies with just B shares listed on the mainland market. The remaining B-share companies are also listed on the A-share market.

Analysts say companies with dual listings could conduct share-swap deals to convert their B shares into A shares. This conversion would benefit holders of B shares because of the relatively high valuations and strong liquidity on the A-share market.

Efforts to solve the B-share problem will be closely watched by not only the shareholders who have suffered losses, but also A-share investors looking for cues from CSRC chairman Guo Shuqing.

His predecessors at the CSRC, Zhou Xiaochuan and Shang Fulin, were reluctant to put the B-share market reform on their agenda.

Since Guo took the helm of the CSRC in late October, investors have been hoping the former China Construction Bank chairman will take drastic steps to help protect their interests.

In the past 10 months, Guo has been trying to bolster the bearish A-share market.

It is believed that Song's statement was prompted by directives from Guo.

Early this month, Tsann Kuen (China) Enterprise's B shares traded below the equivalent of 1 yuan (HK$1.22) for 18 straight sessions before the company announced it would pursue a bailout plan.

The company was on the verge of being expelled from the Shenzhen exchange because of the newly published delisting rule under which a firm can be delisted if its stock price trades below 1 yuan for 20 straight sessions.

Tsann Kuen's sorry saga triggered panic selling as B-share investors worried about a flood of expulsions on the sluggish market.

"It's time for Guo to step in and help us," said Zhu Zhengrong, a retail investor. "He must do something to convince investors that he's different from his predecessors."