Chinese securities regulator set to approve preferred share issues

PUBLISHED : Thursday, 13 March, 2014, 1:25am
UPDATED : Thursday, 13 March, 2014, 6:00pm

The mainland's securities regulator is trying hard to put a floor under the sliding stock market with plans to launch preferred shares to bolster investor confidence.

The China Securities Regulatory Commission is set to allow companies to issue preferred shares within the first half, after the key stock index dropped below the psychologically important 2,000-point mark.

According to sources with direct knowledge of the matter, the regulator is working to launch market-boosting measure to dispel the crisis of confidence among investors.

"Officials would like to accelerate the pace of implementing new incentives," one of the sources said. "Preferred shares appear to be one of the primary choices."

Preferred shares do not trade on the market as their holders have no voting rights. They pay investors fixed dividends and enjoy seniority over holders of common stock in the event of a bankruptcy.

CSRC chairman Xiao Gang told the China Securities Journal that a pilot run of preferred share issues would start in the first half of the year.

Reuters yesterday reported the policy would be approved as early as this weekend. The CSRC could not be reached for comment yesterday.

The Shanghai Composite Index has fallen 2.9 per cent this week, after closing 0.17 per cent lower yesterday. The authorities are alarmed at the drop below the 2,000-point mark for its implications for social stability in a country where millions of retail investors have put their life savings into stocks.

The CSRC, which has been responsible for maintaining market stability in the past two decades, is expected to either curb fresh equity supply or order institutions to increase share buying to prop up the market.

The plan to allow preferred shares is a sign the regulator is making efforts to prevent an influx of new shares from diluting existing holdings since they are not traded on the market.

Sources said the mainland's four biggest banks had been prepared to issue preferred shares.

The CSRC published a draft rule on preferred share issuance in December last year to solicit public opinion.

Beijing lifted a 15-month ban on initial public offerings at the beginning of this year, a move that has dented an already sluggish market.

Mounting worries about an equity influx and worsening economic conditions have further weighed the market down as retail investors have been heading for the exits in anticipation of fresh stocks soaking up available liquidity.

Xiao said on Tuesday Beijing would expand the qualified foreign institutional investor scheme to shore up liquidity.

"This is just empty talk," said retail investor Chen Jianming. "We have been waiting for a strong rally for four years."

The Shanghai index has been among the world's worst-performing indicators since 2010.

In Hong Kong, the Hang Seng Index fell 1.65 per cent yesterday.