CSRC Amends Rules to Curb Refinancing, Steer Funds Towards Real Economy
Yicai Global
/SOURCE : Yicai
CSRC Amends Rules to Curb Refinancing, Steer Funds Towards Real Economy
(Yicai Global) Feb. 20 -- China's securities regulator has amended rules to curb excessive financing by lted companies and divert funds from financial investments toward real economy sectors.The new rules aim to divert investors' attention away from short-term profits and toward value investments, experts said. The rules enable healthy investment by requiring proceeds from equity financing to be effectively used, they said.Refinancing among lted companies has increased at an alarming rate. In some cases, excessive financing was pumped into fake projects or for speculative investment. Proceeds raed by some lted companies were left idle, or covertly put into financial investments or quasi-financial businesses, such as wealth management products. Last year, refinancing on the Shanghai and Shenzhen stock exchanges totaled CNY1.79 trillion (USD261 billion), almost 13 times the total value of IPOs during the same period.The China Securities Regulatory Commsion amended the rules three days ago, with changes including:- Capping the number of shares sued in a private placement to 20 percent of the total share volume before the deal.- Requiring lted companies to wait 18 months between financing rounds, including initial public offerings, additional share suances, share allotments and private placements.- Limiting trades to market price, which will be determined on the first day stocks are sued.Convertible bond offerings or preferred stock, and fast financing of a relatively small value on the Growth Enterpre Market are exempt from restrictions.The regulator announced two days ago that the new rules also apply to private placements conducted by lted companies for asset purchases through share financing, and the volume of these private placements will also be restricted to 20 percent of the total capital stock."Through refinancing, lted companies could previously sue securities as quasi-financial institutions, but the new rules restrict th power," a representative at a major Shanghai brokerage told Yicai Global. The new policy will come as a serious blow to shell stocks, he added.Almost 40 percent of additional share sues carried out by lted companies between 2010 and 2016 exceeded 20 percent of their capital stock before shares were sued, according to data from Huatai Securities Co. [SHA:601688]. The new cap will significantly reduce refinancing th year, a senior investment bank manager said.Follow Yicai Global on Facebook @yicaiglobal and Twitter @yicaichina.
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