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Jilin AoDong Medicine Industry Group Corp Ltd (JLAOD), one of China's medicine heavyweights, on Friday announced it would shrink the number of its non-tradable shares in order to float all its stocks, the first pilot firm to use this method when restructuring their shares.
The company revealed the trial edition of its compensation proposal, claiming to shrink its non-tradable shares at the rate of 1/0.6074.
After the shrinking, the non-tradable shareholders will own 34.44 percent of the company's shares, about 12 percent less than the original level.
The tradable shareholders will lift their hold from the former 53.62 percent to 65.56 percent.
The company also pledged to pay all its shareholders 1.07 yuan (13 US cents) for every 10 shares held.
But the non-tradable shareholders agreed to transfer their part of capital compensation to the tradable shareholders, which is worth about 17.43 million yuan (US$2.1 million).
The transfer means the tradable shareholders can be paid 2 yuan (24 US cents) for each 10 shares held.
After paying the income tax on dividends, which was levelled at 10 percent last week, the tradable shareholders will get 37.59 million yuan (US$4.55 million).
After the adjustment, the values per share for tradable and non-tradable shares are equal.
The company's non-tradable shareholders promised not to put their shares on the market or transfer to others within 12 months after the floating is realized.
But there are also complaints about the inadequacy of the compensation.
The shrinking should be larger, said Jiang Wen, a veteran trader in Beijing. The tradable share price taken as a factor of the ratio calculation is 5.96 yuan (72 US cents), the average of 30 trading days before suspension this Monday.
But most of the traders bought the shares at a higher price. The shares' historical highest price is more than 37 yuan (US$4.4) and the frequent trading price is between 10 to 20 yuan, he said.
Shrinking is only one of the approaches to solve the irrational share structure, said Fang Xin Ming, a fund manager in Beijing.
The first batch of four pilot firms made compensation in the form of shares and capital.
Baosteel, a blue-chip company of the second batch of pilots, employed warrants as a way of compensating its non-tradable shareholders.
But the simplest way is the best, Fang said. The simplest way is ask the non-tradable shareholders to part with a certain number of shares to tradable shareholders, according to the manager.
The trial proposal is to solicit market feedback and will be submitted to the provisional shareholders' meeting later next month, according to a high-ranking official of the company.
These firms' experiment proposals can be carried out only when they have been passed by a certain amount of negotiable shareholders casting their votes and representing at least two thirds of the negotiable shares.
Trading of JLAOD's shares will be resumed and it was last traded 5.9 yuan (71 US cents) last Friday before being designated for the state share sale reform.
The company was listed on the Shenzheng Stock Exchange in 1996. In 2003, the company had total assets of 195 million yuan (US$ 24 million).
(China Daily June 25, 2005)
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