Shanghai Industrial, the city government's investment arm, will book an exceptional loss of $200 million this year due to the mainland's proposed share reform for its 56.63 per cent-held A-share biotechnology subsidiary, Shanghai Industrial United. The ongoing reform to make non-tradable shares tradable is likely to have a big impact on Hong Kong-listed companies that hold such A-share vehicles, although the size of the deals does not come close to the trigger point for calling the consent of all shareholders. 'Although the company does not need shareholder approval for the payment, the loss is significant when compared to the net profit,' Macquarie Research conglomerate analyst Peter So said. Shanghai Industrial reported a net profit of $1.38 billion in 2004, with an exceptional gain of $600 million from the listing of Shanghai SMIC, the integrated circuit foundry. It is expected to post a profit of $1 billion for last year. Under the reform, Shanghai Industrial will offer minority shareholders three non-tradable shares for every 10 A shares held, in exchange for their consent to convert all non-tradable shares into tradable A shares. The offer will result in Shanghai Industrial's shareholding in the biotechnology firm being reduced to 43.62 per cent. The company has agreed to a two-year lock-up period for the subsidiary's A shares and will not dispose of more than 5 per cent of the unit in the third year. Bright Dairy and Food, another associate of Shanghai Industrial, will undergo a similar reform, according to an announcement to the stock exchange last month. A Shanghai Industrial spokesman expected the reform to be implemented in the first half of this year. Analysts said the move by Shanghai Industrial would put pressure on its peers, particularly Beijing Enterprises, to follow. Beijing Enterprises is likely to have to propose a big compensation offer to shareholders of its two subsidiaries - Beijing Yanjing Brewery and Wangfujing Department Store.