Compensation packages not too generous as investors await further details on sale of non-tradable stocks Mainland investors braced for impact yesterday as more details emerged about Beijing's plans to unload US$250 billion worth of non-tradable shares on to domestic stock markets. Widely held Citic Securities and Baoshan Iron & Steel (Baosteel) have become the latest companies to offer free stock to shareholders as a means of softening the blow. About 67 per cent of equity in the mainland's 1,400 listed companies is now non-tradable, mostly in the form of state-held shares. Last month, the China Securities Regulatory Commission launched a pilot scheme, now involving 46 firms, to release the shares on to the market and eliminate the overhang they have created for most of the past decade. If their proposals are accepted by shareholders, Baosteel and Citic Securities will become the largest firms yet to join in the experiment. Of the first four firms authorised to sell their non-tradable shares, all but one has been successful in convincing their existing shareholders to go along. Each was forced to offer free shares as compensation for the dilution of value sure to ensue once the flood of new shares reaches the market. One even included a cash payout. Yesterday, Citic Securities president Zhang Youjun told an investors' meeting in Shanghai that the company planned to offer shareholders 2.5 state shares for each 10 shares held. Baosteel, China's third-largest firm by market capitalisation, plans to offer investors one share for every 10 held, according to a Shanghai-based fund manager. 'None of this is finalised as investors are still considering the scheme,' the fund manager said. 'If there are too many complaints, Baosteel may have to change its plans.' Baosteel will sweeten the deal with warrants. Investors will get put options to sell five shares at 5.12 yuan for every 10 shares held, as well as call options to buy two shares at 4.18 yuan each for every 10 shares held. It is unclear what the duration of the warrants will be. 'On the surface, one for 10 sounds rather mean compared to the first batch,' HSBC equity strategist Garry Evans said. However, based on Baosteel's present share price of 4.89 yuan, a five-year warrant on those terms would be worth about one yuan per share, and the overall compensation package would be roughly equivalent to three shares for 10. 'In terms of generosity, it looks to be about the middle of the pack,' Mr Evans said. 'The question is why they need to do it in such a complicated way, and when they're not talking, I think that's going to make it less likely that fund managers will approve it.' Funds and private investors that own stock in mainland firms loathe the prospect of an influx of state shares diluting their value. Such worries played a large part in bringing the Shanghai Composite Index to an eight-year low on June 3. Many of the non-tradable shares were acquired by state-owned enterprises at prices far below their exchange-traded value and punters fear a selling spree once they are made tradable. 'Baosteel is widely held and its liquidity is high so it won't have too many problems pushing this through,' Shenyin Wanguo Securities research director Philip Chan said. 'But the medium-caps that make up the majority are going to have a harder time and will need to add more sweeteners.'