China's regulator has set rules for stakeholders seeking to sell bonds exchangeable for shares as part of an effort to deter equity sales and support a stock market that's dropped 66 percent this year.
Companies holding equity in listed units can sell the bonds with maturities of between one and six years if they have net assets of more than 300 million yuan (US$43.8 million), the securities watchdog said in a statement on its Website, Bloomberg News reported.
Exchangeable bonds will let state stakeholders raise funds without selling shares in the market, limiting the supply of equities as trading restrictions on those stakes expire.
"It's obvious the government is trying to reduce pressure on the stock market by delaying sales of the locked-up shares," said Cheng Weiqing, the Beijing-based chief strategist at CITIC Securities Co. "The exchangeable bonds have been designed by the regulator to boost the market."
China's benchmark CSI 300 Index has plunged 66 percent this year.
Sellers of exchangeable bonds must have averaged annual retained profit over the past three years equal to more than one year of bond interest, according to the China Securities Regulatory Commission's rules. The amount of cash raised from bonds should be no more than 70 percent of the average market value of companies the seller held during the 20 trading days before announcing the sale.
Shares that will be swapped for the bonds must be tradable stock in companies with net assets of not less than 1.5 billion yuan. Bond sale contracts can allow sellers to redeem the securities at a later date, according to yesterday's statement.
In April, the commission adopted rules to limit the amount of state-owned stock that can enter the market.
(Shanghai Daily October 20, 2008)
