Regulator orders return of funds to companies

China's securities regulator yesterday warned majority shareholders of mainland-listed companies to return borrowed and 'misused' funds or face legal action and administrative penalties.

Analysts say a 'couple of hundred' of the more than 1,300 firms listed in Shanghai and Shenzhen have had money requisitioned or borrowed by their parent companies, which are usually state-owned.

'The money borrowed from listed companies belongs to shareholders and the group company does not have the right to use their listed subsidiaries as private banks,' one regulatory official said.

'They must return any misused funds as soon as possible or face punitive measures.'

The punitive measures can include legal action and suspension of any activities that require China Securities Regulatory Commission approval such as new share sales.

Parent companies that had borrowed less than 10 million yuan must return the full amount by the end of next month while borrowings that exceeded that size must be returned by the end of the year, the CSRC said.

Majority shareholders would have to settle the debts with assets or stocks if they failed to repay in time, it added.

'The regulator has been paying close attention to this issue for a while and has finally decided to take serious action and lay down some deadlines,' said Charlie Chen, an analyst at Haitong Fortis Investment Management in Shanghai.

Under pressure from regulators, majority shareholders of 157 listed companies repaid 8.9 billion yuan of improperly borrowed funds in the first four months of this year with 71 settling the debts entirely, the China Securities Journal reported yesterday.

The CSRC yesterday issued further regulations aimed at ensuring majority shareholders of firms that have already undergone state shareholding reforms pay the full amount of compensation owed to minority holders of tradable shares.

The process of compensating holders of tradable shares is seen by the authorities as largely successful and regulators are now moving more aggressively to tackle longstanding issues of corporate governance.

Mainland markets were buoyed by the new measures yesterday with the Shanghai Composite Index rising 2.14 per cent to 1,648.54 points and the Shenzhen Composite Index advancing 2.5 per cent to 414.56 points.

The indices have jumped more than 40 per cent since late last year as investors start to return to a market that hit eight-year lows in the middle of last year.