Regulators call for share buybacks to boost confidence

Securities regulators have called on State-owned enterprises to buy back their own shares to restore confidence in the stock market.

China Business News reported on Monday that the China Securities Regulatory Commission had met with more than 10 major State-owned companies, including Baoshan Iron and Steel Co Ltd, China Petroleum & Chemical Corp Ltd, PetroChina Co Ltd, and China Shenhua Energy Co Ltd, asking them to buy back their own shares.

It said the Sept 4 meetings were arranged to help stabilize the securities and futures market and boost investor confidence prior to the 18th National Congress of the Communist Party of China to be held later this year, when the country is expected to see a change in its top leadership.

News of the potential buybacks rallied the market, with the major Shanghai Composite Index jumping 3.7 percent on Friday, its biggest one-day gain since Jan 17.

On Monday, the Shanghai index gained 0.34 percent, or 7.13 points, to 2,134.89 points.

The index hit a low of 2,047.52 points on Aug 31, causing fears that it will soon break below the psychologically important level of 2,000 points.

So far, the index is down 3.18 percent year-to-date and has dropped 1.81 percent over the past 30 days.

The slump has meant considerable falls in individual prices. China Yangtze Power, for instance, saw its share price close on Monday at 6.46 yuan, close to its issue price in 2003.

"Clearly the regulators want a stable market when the Party congress meets later this year," said Wang Jianhui, chief economist with Southwest Securities Co Ltd.

"But it's not just a political decision; it makes sense economically with the market valuation at a record low."

Securities Times figures show that the price-to-book ratios of 78 companies have dropped to below one last month, indicating shares are being traded below book value.

That list includes blue chips such as China Railway Construction Co Ltd, and carmaker FAW Haima Automobile Co Ltd.

Some major public companies have already launched share buybacks.

On Aug 27, share prices of Shanghai-based Baoshan Iron and Steel, China's biggest steelmaker, surged after it announced a buyback plan worth 5 billion yuan ($786.88 million) to buy 1 billion of its shares.

Its shares jumped as much as 10 percent on the Shanghai exchange after it revealed the plan, aimed at "safeguarding shareholder interests, increasing investor confidence, and maintaining its share price".

Until then, its share price had dropped 16 percent during the year.

High-speed train maker CSR Corp Ltd also announced a buyback of 471,000 shares on Aug 29.

gaochangxin@chinadaily.com.cn