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Christine Chan

THE strong reception for a new share allocation system, linking them with bank deposits, has raised hopes that the mainland method of issuing unlimited share subscription forms will be replaced.

  The trial method was used last month by Tsingtao Hai'er Refrigerator and Ji'nan Qingqi Motor in their A-share issues for mainlanders, and was highly recommended by Beijing's securities watchdog.

  Under the new system, investors deposit a sum of money to a bank which numbers the deposit receipts for lot-drawings.

  The lot-drawings decide who get the shares in the companies on offer.

  Those who win the right to buy shares via the lot-drawings have money drawn from their accounts, while those who fail have their funds locked in the bank for a certain period, after which they regain access to their money plus interest.

  The terms are one year for Tsingtao Hai'er and six months for Ji'nan Qingqi.

  Although the companies are using the same concept of linking with deposits, there are differences between the two payment terms.

   China Securities official Nie Duoxin said yesterday Hai'er's investors deposited 500 yuan (about HK$675 at official rates) for one deposit unit, regardless of how much the shares were worth.

  The deposit unit in turn gave them a single chance of winning shares in the lot-drawings.

  Investors would pay the exact worth of the shares only after they were allocated the shares from the lot-drawings, Mr Nie said.

  Beijing-based China Securities is the underwriter of Tsingtao Hai'er while Shanghai International Securities is underwriting the Ji'nan Qingqi issue.

  Ji'nan Qingqi's payment, however, differs from that of Tsingtao Hai'er's. Investors in Ji'nan Qingqi deposited the exact amount of the shares they subscribed for.

  An official at Shanghai International Securities said Ji'nan Qingqi investors paid 3,340 yuan for one deposit unit, consisting of 500 shares, on the share's issue price of 6.68 yuan each.

  This was more in line with international practice, as with in Hong Kong, although there were many areas to be improved, he said.

  ''The cost of share purchases is lower via this method and the risks will be lower as well,'' he said.

  In Beijing yesterday, a China Securities Regulatory Commission (CSRC) official said it highly recommended the new way of share-distribution.

  However, it was not mandatory for future issues.

  He noted that the method was the best for the time being, given that personal cheques were far from common on the mainland.

  Also, the advantage of the new method was that each issue is launched individually, instead of collectively previously.

  An individual launch has meant that investors can nominate the stock they want while a collective launch suggests that investors will know which company's shares they are allocated only after the lot-drawings.

  However, the suggestion that investors will have a lower cost in share purchase rests on the assumption that they will put their money into the bank if not in the stock markets.

  The new method compares with the unlimited issue of share coupons introduced in the middle of this year to meet the high demand for shares and to avoid any repeat of the Shenzhen share fiasco in August, 1992.

  Last August, a limited issue of share subscription forms in Shenzhen led to riots and widespread unrest in the city.

      When unlimited share subscription forms were introduced, it was hoped that share-allocation could be achieved in a fairer manner than previously.

  While more investors are given the chance of obtaining shares, the unlimited sale of coupons entailed too high a cost to mainland investors.

  Tsingtao Brewery, for example, recorded an extra cost of 6.39 yuan for each share for subscription forms, doubling the issue price of 6.38 yuan.

  The high extra cost was because more subscription forms had to be bought if investors were to ensure an allocation of shares.



Watchdog backs new issue method