Too many State shares in listed firms have formed a bottleneck in their development. It is imperative to find feasible ways to reduce the percentage of State shares in public firms, said an article in the China Economic Times.
Statistics show that there were 890 domestic public firms by the end of April, 79.2 percent of which had more than 50 percent of their shares held by their largest shareholders.
Among them, 63 have more than 75 percent of shares held by the largest shareholders.
This means the government has an overwhelming majority of public firms' shares, given that most of China's public companies are State-owned or State-controlled.
The high percentage of State shares has caused fears that many listed companies may fall prey to interference from their upper-level administrative departments.
Individual shareholders also complain that they have little clout in the management of public companies, in that they have only a small fraction of these companies' shares.
But nor can they change the situation by buying State shares. State shares are banned from trading in the stock market because of the fear that any mass sale of State shares could shake the fledgling market out of shape.
It will be a thorny and long-standing job to cut the percentage of State shares. Public companies and securities authorities can take pragmatic measures to solve the problems gradually, the article said.
For example, State enterprises can opt to allocate part of their shares to staff.
Generally speaking, the income of staff in State enterprises is not high. Allocated shares can play an anchor role in their rainy days and thus encourage them to work hard.
It is necessary to restrain staff members from selling the allocated shares in the stock market, otherwise the market may suffer drastic fluctuations.
But they should by no means be deprived of the right to vote. The involvement of staff in decision-making can help dilute the might of State shares.
Allocating State shares is a moderate way of optimizing the ownership structure of State firms. It can reduce the percentage of State shares on the one hand and maintain the stability of the stock market on the other, said the article.
Likewise, listed companies can sell some of the State shares to staff or even to the public. They can cushion possible impacts on the stock market by restricting the tradeability of these shares within a certain period of time.
Domestic companies can also try to transform State shares into pre-emptive stocks, which means holders of such stocks do not have the right to vote, the article suggested.
It is a common practice in Western countries that public companies offer different types of shares to investors. Ordinary shares and pre-emptive shares are two typical alternatives.
Ordinary shareholders have both the right to earnings and the right to vote. Pre-emptive shareholders do not have the right to vote, but they have the priority of compensation once the company they invested in goes bankrupt.
The difference is clear: pre-emptive shareholders are ruled out of the decision-making in public companies, but their investments are safer.
Although current domestic laws have not stipulated the difference in stocks, it is important to diversify the shares of public companies.
Transforming State shares into pre-emptive stocks is a win-win solution for both enterprises and the government, the article said.
It will help enterprises throw off the shackles of interference from the government, which will no longer have the mandate as pre-emptive shareholder.
With pre-emptive shares, the government has prior access to the profits of enterprises. The appreciation of State assets is therefore secured.
It is also recommended that public companies issue convertible bonds to dispose of State shares.
By issuing these bonds, public companies can sell part of their State assets to holders of the bonds. Bond holders are usually required to convert their bonds into shares in the stock market with a contractual time limit. As a result, some of the State shares are changed into tradeable individual shares.
It is vital that companies stipulate a maximum price below which bond holders must sell, otherwise companies can redeem the bonds. It can curb price-rigging and prevent shocks from rippling across the market.
Alternatively, public companies can issue certificates for share subscriptions, suggested the article.
The certificates acknowledge the subscribers' right to buy some State shares at a compromised price and within a contractual time limit.
After buying the State shares, subscribers will themselves decide when to sell in the stock market.
Common sense will tell them not to sell when the market is sluggish, but when buoyant, which will help stabilize prices in the stock market.
Clearly, the certificates can serve as an excellent buffer, when selling State shares directly on the market may risk driving down market prices, said the article.
Many companies have crafted a variety of ways of thinning out State shares. For example, some companies have managed to buy some State shares with their profits.
Most public companies cannot follow them because of fund shortages, but they can issue new shares to raise money and buy State shares.
Domestic companies can explore new ways to whittle down their State shares. They should take account of both the stability of the market and the safety of State assets, the article said.
(China Daily 06/14/2001)
