The Industrial and Commercial Bank of China (ICBC) could be the first Chinese company to make use of a greenshoe option in its domestic initial public offering (IPO), China's top securities regulator said yesterday.

 

The regulator is considering introducing new schemes on stock issues and underwriting, allowing large companies offering more than 400 million shares to the public to use the greenshoe option for the first time.

 

"According to current progress, the ICBC should be able to carry out that scheme," Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC) said at a financial forum in Xianghe, near Beijing.

 

The ICBC, the country's largest lender, aims to complete its listing simultaneously in Hong Kong and Shanghai by late October, and plans to sell as much as US$21 billion shares on the two bourses.

 

The adoption of the greenshoe option was written in a revised draft rule published by the CSRC on Monday. The regulator is seeking public consultation on the rule until Friday. Industry insiders predicted that it could be promulgated as early as the end of September.

 

A greenshoe option typically allows underwriters to sell up to 15 per cent more shares than the original number set by the issuer, if demand exceeds expectations and the stock trades above its offering price.

 

Greenshoe, also known as an over-allotment option, gets its name from the Green Shoe Company in the United States, which was the first company to have such an option.

 

"The option aims to stabilize share prices once they are listed and therefore helps reduce the volatility," said Justin Haik, executive director of Morgan Stanley's Global Capital Market Department.

 

China's converting of non-tradable shares to tradable ones over the past 16 months has successfully strengthened its domestic markets. And regulators are making more efforts to improve the infrastructure of the capital markets, Shang said.

 

Monday's revised draft rule also allowed a simultaneous online and offline subscription of stocks by institutional and retail investors, which is expected to shorten the subscription period by two days.

 

The scheme will make the Shanghai and Shenzhen stock exchanges more attractive, and could lure more companies to make large IPOs domestically, analysts said.

 

The chairman of the CSRC yesterday also revealed a rough schedule for China's launch of stock index futures, which will trade on Shanghai's new financial derivatives exchange.

 

"We hope that by the end of this year or early next, China will begin trading stock index futures," Shang said.

 

(China Daily September 15, 2006)