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China to allow exchangeable bonds to ease stock oversupply

(Xinhua)
Updated: 2008-09-05 21:15

Figures from the CSRC show 480 million shares were freed from lock-ups and sold by shareholders in August, 43 percent less than in July. However, the benchmark Shanghai Composite Index still tumbled more than 20 percent in the month.

Last month, the industry regulator raised the refinancing threshold for listed companies. It said companies could only carry out refinancing plans if they had paid dividends to shareholders equal to at least 30 percent of distributed profits over the most recent three years, up from 20 percent previously.

The slumping market reflected a correction from previous highs, rising global financial uncertainty and concerns about the domestic economy, the CSRC said in a statement last month. It said China's unsound stock market exacerbated the situation.

As weak sentiment made it harder for Chinese companies to raise money on the stock market, the government tried to boost the bond market as an alternative.

The emergence of exchangeable bonds is part of the effort to improve the structure of the capital market and will help connect the equity and debt markets, according to the CSRC official.

So far this year, about half of the value of refinancing efforts by listed companies represented bonds, which was progress in reducing reliance on the stock market, said the official. Previously, bonds accounted for only about 10 percent of corporate refinancing.

As of the end of August, bond issues by listed companies totaled 152.5 billion yuan (22.3 billion U.S. dollars) since 2006, when the CSRC allowed such a practice, CSRC figures show.

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