The mainland securities regulator has tightened approvals of listed companies' refinancing applications, requiring them to raise funds for real expansion rather than replenishing capital.
According to two investment bankers, companies planning share placements can only use less than 10 per cent of the proceeds to boost cash flow, against 30 per cent previously.
'The new requirement means that companies will have to use the newly raised capital to fund real projects,' one banker said. 'If they don't have substantial expansion plans or just want to use the money to replenish capital, it is all but certain that their refinancing proposals will be rejected.'
The China Securities Regulatory Commission was not available for comment yesterday.
Listed firms' refinancing deals are subject to the CSRC's approval. There are, however, no official rules governing the usage of the proceeds. Previously, firms could use up to 30 per cent of the proceeds to repay bank loans or boost their cash positions.
As Beijing tightened its monetary policy, ordering banks to rein in their loans this year, listed firms have started resorting to rights issues and share placements to raise funds.
According to data provider Wind Information, mainland companies raised a combined 93.1 billion yuan (HK$112 billion) through refinancing deals in the first half of the year, up 47.3 per cent from a year ago.
Among them, Tangshan Port Group, which listed on the Shanghai Stock Exchange in July last year, announced its refinancing plan in February - less than eight months after it netted 1.6 billion yuan from its initial public offering.
'The regulator should have laid down clear rules on the use of stock market proceeds,' Dazhong Insurance fund manager Wu Kan said. 'After all, investing the money from placements to expand production is the only right thing to do for the companies.'
Fund-raising activities on the mainland remained strong in the first half following the surge in initial public offerings last year.
The mainland was the world's largest market for new listings last year, with 349 firms raising a record 478.3 billion yuan. The Shanghai Composite Index, however, fell 14.3 per cent, partly because of the new listings, which soaked up liquidity.
In the first six months of this year, 168 companies came on the market, raising a total of 176.3 billion yuan. PricewaterhouseCoopers expects full-year listing proceeds could top 400 billion yuan.
The CSRC grappled with supervising the use of listing funds in the second half of last year, when firms on the Nasdaq-style ChiNext market failed to properly use the proceeds.
According to the interim reports of the about 100 ChiNext-listed firms, only 10 per cent of their listing proceeds had been used to finance their expansion while the rest were either left idle in banks or used to speculate in equities and properties.