Good move -- China sets floor price for state share sales
By Richard McGregor in Shanghai and Alexandra Harney in Hong Kong
Published: December 16 2003 13:07 | Last Updated: December 16 2003 13:07
China has set a floor price for the sale of government shares in listed companies, a policy aimed at preventing a firesale of state assets and their acquisition on the cheap by executives in management buyouts.
The announcement that state shares could not be sold below their net asset value, which appeared to be preparing the market for a recommencement of the sale of state shares, had an immediate negative impact on share prices in the mainland, where the threat of a large-scale sell-off of stock in listed companies had long depressed the market.
However, sales are likely to be restricted for the moment to a handful of companies on an experimental basis.
The news, carried in the official media, contradicts a statement last month by Li Rongrong, chairman of the cabinet's state-owned assets and supervision and administration commission (Sasac), that the market would set the price for such sales.
The government has long grappled with finding a way to sell down the non-tradable state shares, which account for about 65 per cent of the stock in listed companies.
Yun Yan Ma, partner at Guangdong Shujin Law Firm, said that she expected the government to finalise new policies for such sales in early 2004.
"It will be a gradual process. The government will consider selling out a certain percentage of [government-controlled] shares to investors each year," she said.
The policies would be in line with the government's strategy to withdraw from highly competitive industries such as information technology.
However, Ms Ma stressed that these policies would represent only a temporary solution to the problem of the overhang of state-owned shares.
"The government will have to balance the interests of different parties - the state's interest on one side and the interests of investors on the other."
The establishment of a floor price is also aimed at stopping the virtual theft of state assets in so-called management buyouts, where executives oversee sweetheart deals to give themselves control of state enterprises at little cost.
An editorial in the People's Daily, the communist party mouthpiece, said assets were often transferred "under the table" and "owners and buyers colluded to privatise enterprises illegally".
The H-share index in Hong Kong, which tracks Chinese companies in the former territory, also fell by nearly 1 per cent on the news, although that was more driven by profit-taking in stocks which had risen sharply in recent months.
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