Cash-Strapped Chinese Firms May Have Easier Time Selling Stock
Cash-Strapped Chinese Firms May Have Easier Time Selling Stock
(Bloomberg) -- Corporate stock sales in China may get a further boost, as the country’s securities regulator steps up efforts to help cash-strapped firms weather China’s economic slowdown.
The China Securities Regulatory Commission on Friday unveiled plans to relax controls over public firms’ follow-on offerings, more than two years after it clamped down on such activities. Investors have been calling on the CSRC to remove the secondary share sale curbs. Still, some analysts say the proposed loosening is more market-friendly than they had expected.
Private placements were by far the most-popular way for companies to raise capital through selling stock, as opposed to moves like offering shares in a secondary offering to investors at large. Under the new proposals, pricing restrictions and lock-up limits on private share placements by listed companies would be eased. Also, the maximum number of investors firms could sell shares to would rise.
For ChiNext-listed companies, they would no longer need to be profitable for two consecutive years before raising funds through private placements. The CSRC also mapped out policies to help firms on the Star board attract capital in a faster way.
The proposed changes are more favorable than expected, CICC’s analysts including Yao Zeyu write in a note. “The new rules grant (companies) greater pricing power and will help improve share-issuance efficiency, fund-raising flexibility and stock liquidity.”
While the market has anticipated the regulator to scale back the additional share sale restrictions to help companies offset impact from the economic downturn, it is still “a surprise that the draft rules are so comprehensive,” said Ge Shoujing, a Beijing-based senior analyst at the Reality Institute of Advanced Finance.
The CSRC is inviting public feedback on the draft rules until Dec. 8.
China is beefing up efforts to mitigate funding challenges faced by local firms by widening access to equity financing. Beijing has made it a priority to ensure the country’s capital markets play a bigger role in bolstering economic growth, which has slowed to its weakest rate in almost three decades amid a trade war with the U.S.
Firms this year have raised about 600 billion yuan ($86 billion) through selling shares and equity-like securities, according to Bloomberg-compiled data as of Nov. 10. That’s already higher than the full-year tally of 2018 and marks its first increase since 2016.
To contact Bloomberg News staff for this story: Ken Wang in Beijing at ywang1690@bloomberg.net
To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Fran Wang, Kevin Kingsbury
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