A Shenzhen-listed power company yesterday received the go-ahead from its shareholders to convert its non-tradable state shares to ordinary ones.

All 50 companies on Shenzhen's SME (small and medium-sized enterprises) board have now finalized this reform process.

A majority of shareholders of Guizhou Qianyuan Power Co. Ltd., based in southwest China's Guizhou Province, yesterday approved the company's share reform plan.

This improves the compensation to holders of tradable shares from 2.8 new shares for every 10 already held to 3.2 shares for every 10.

Analysts and experts say the completion of the reform on the Shenzhen SME board provides good conditions for the launch of a new stock index that takes into account the changes.

"With all listed companies (on the SME board) completing their A-share merger reform, the conditions can only become more favourable to introducing a SME board index," said Li Yan, a research fellow at Tsinghua University's Research Centre for China's Financial Studies.

A SME board index launched now, she said, would reflect the firms' market performance more accurately than before the reform process.

The market has long expected the launch of such an index.

An official from Shenzhen Stock Exchange yesterday declined to comment on the issue.

But he told China Daily that his exchange would hold a press conference next week during which it will inform the public about the latest developments on the much-anticipated index.

The 50 SME-listed companies on average offered their tradable shareholders 3.38 shares for each 10 held, about 5 percent higher than the compensation from companies on the main board.

In China two-thirds of listed companies' A shares held by the State or other legal bodies were non-tradable, with only the remaining one third held by public investors.

The split share structure is often blamed for distorted stock prices over the last four years.

To float non-tradable shares, the State shareholders first needed to offer shares or cash compensation to tradable shareholders.

China kicked off this A-share reform, involving shares traded in renminbi on China's two stock exchanges in Shanghai and Shenzhen, in April.

Yesterday, another 17 companies joined the process, bringing to 270 the number of companies that have completed or announced they would join the reform scheme.

They account for almost 20 percent of China's 1,400-plus A-share listed companies.

Of the 17 companies joining the scheme yesterday, four also sell B-shares, which are foreign-currency traded shares on mainland markets.

And 13 of the 17 companies are state-owned enterprises (SOEs), a fact that analysts said was a sign that SOEs were speeding up the floatation process.

The benchmark Shanghai composite index, which gained 2 percent last Friday, remained almost flat yesterday, closing 0.26 percent higher at 1,119.936 points.

"Tepid market sentiment is within expectations," said analyst Liu Haobo, with Beijing-based CITIC Securities.

"The publication of the list (of the plans of the 17 companies) is well within the market's expectation and offers nothing fresh to lift sentiment," he said.

The market, the CITIC analyst said, was likely to adopt a wait-and-see attitude in coming days, watching closely for new measures taken by regulators.

If there are no "new and bold" policy incentives from the regulator, Liu said, market sentiment is unlikely to lift much.

In another development, the Bank of Communications, which was listed in Hong Kong in June, was reportedly planning to reveal its management incentive mechanism.

The incentive was reported to be as high as 800,000 HK dollars (US$103,225) each year for a manager or board director at the bank.

(China Daily November 22, 2005)