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China economy

China’s troubled private listed firms offered billion-dollar bailouts

  • Authorities in Guangdong, Zhejiang pledge more than US$2 billion to save firms that put up stock as collateral for bank loans from forced share sales
PUBLISHED : Monday, 29 October, 2018, 7:18am
UPDATED : Monday, 29 October, 2018, 11:23am

Authorities in two areas of China known as centres for private enterprise said they will make at least 15 billion yuan (US$2.16 billion) available to prevent listed companies having to sell off stock put up as collateral against bank loans.

The government of east China’s Zhejiang province, which is home to such companies as Alibaba Group – which owns the South China Morning Post – and Geely Automobile, said it would make up to 10 billion yuan available, while authorities in Shantou, a city in southern Guangdong province, said they would put 5 billion yuan on standby, according to official statements.

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China’s private firms have this year suffered their worst stock market rout since 2015.

All but 13 of the 3,491 companies listed on China’s two stock exchanges have pledged their equity as collateral against bank loans, according to figures from China Securities Depository and Clearing Corporation, with the total value estimated at 4.5 trillion yuan.

Zhejiang State-owned Capital Operations Co, the provincial government’s investment arm, said on Friday it would establish its fund in partnership with the provincial branch of Agricultural Bank of China and the lender’s private equity investment unit, ABC Financial Asset Investment Co.

“Many listed companies have announced that the value of stocks pledged [as equity against bank loans] had reached the level that would trigger a forced sale,” it said in a statement.

The investment company said the first injection of funds would be soon, adding that it would be used to buy stocks in 10 companies identified as being at risk. It did not name any of the target firms.

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Authorities in Shantou issued a similar statement on Saturday, saying that its bailout fund was created as a partnership between state-owned enterprises in the city – including brokerage firm Haitong Securities – and the privately owned Yihua Group.

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Meanwhile, authorities in Dongguan registered an investment company on October 19, according to the National Enterprise Credit Information Publicity System, but it did not say how much money would be made available.

All of the announcements came after China’s top officials appealed for local authorities to make funds available to listed companies facing the proposition of forced stock sell-offs.

On October 19, both Vice-Premier Liu He and Liu Shiyu, the chairman of the China Securities Regulatory Commission, called for funds to be set up to support private firms.

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Many companies opted to offer their stock as collateral as the only way to get access to credit amid Beijing’s push to reduce debt levels. But a stock market rout has seen the value of those shares fall so low that banks are threatening to sell them off.

As of Friday, the Shenzhen Composite Index was down 32 per cent since the start of the year.

Both Zhejiang and Guangdong are regarded as economic powerhouses, but their large numbers of private firms have been among the first to feel the impact of the US-China trade war.

The Zhejiang investment company cited “the intensifying trade frictions between China and the US” as one of the reasons for a slump in capital markets.

While it said it would not be seeking to buy a controlling stake in any of the target companies, at least 24 private listed companies have been taken over by state funds since the start of the year.