China Bans Off-Market Sales of Non-Tradable Shares(Update1)
(Adds analyst's comments in the seventh paragraph.)
Tue, 9 Oct 2001, 6:16am EDT
Shanghai, Oct. 9 (Bloomberg) -- Chinese securities regulators are banning off-market sales of shares in state-owned companies that aren't allowed to trade on stock exchanges, to cool a speculative bubble and prevent what they call ``financial risks.''
Only about 30 percent of the shares of listed state-controlled companies trade on stock exchanges. The remainder, usually held by state institutions, are barred from trading on exchanges, though they are bought and sold in auction houses in Shanghai and other cities.
In banning those auctions, the China Securities Regulatory Commission said the Shanghai and Shenzhen stocks exchanges are the ``only legal places'' for buying and selling stakes in listed companies, the commission said. ``Stake auctions held outside the stock exchanges not only dodge regulatory supervision, but also lack open, fair, and just principles,'' the commission said. ``It has caused many problems and if not curbed, will easily give rise to financial risks.''
Non-tradable shares in state-owned companies comprise 70 percent of all corporate shares in China. Their off-market trading has boomed the past two years as companies and government agencies sought to turn stakes into cash.
Investors, on the other hand, have been betting that the non-tradable shares, which can be bought for as little as 10 percent of their stock market prices, will rise once the government allows them to be traded on exchanges.
``The value of these `legal-person' shares is likely to appreciate following the ban,'' said Zeng Shen, an analyst at China Communications Securities Co. in Shanghai. "Brokers will also benefit as the share transfer must go through them.''
The government already allows companies to sell some state-owned shares to the public in initial offerings and share placements to finance retirement funds for the 200 million workers expected to be on old-age benefits in 30 years.
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