SFC rejects any stabilisation scheme for Shanghai Petro

THE share price stabilisation scheme proposed in the Shanghai Petrochemical prospectus will not be allowed to operate in Hongkong when the issue starts trading on Monday.

The Securities and Futures Commission (SFC) has taken a firm line that the sponsoring banks may not move into the market to support the price by offering to buy at a set level - so setting a floor.

This, says the SFC, would be in contravention of Section 135 of the Securities Ordinance, which deals with false markets and trading, and specifically forbids the buying and selling of shares for the purpose of stabilising the price.

What the sponsors - Merrill Lynch, and Peregrine Capital - will be allowed to do is to ''cover'' the issue and buy shares to meet demand from outside Hongkong.

So, if there is real demand from US or other international investors disappointed at the amount of Shanghai Petro stock they have been allocated under the separate offering, the houses will be able to meet the demand by moving into the Hongkong market.

The international tranche of the Shanghai Petro offering was 840 million shares, half the 1.68 billion on offer. A further 252 million shares are available to meet excess demand.

At the time the flotation was arranged, the market hardly considered it necessary for a support system to be put in place, as the demand was expected to be heavy.