By Josephine Lau and Jiang Jianguo, Bloomberg
Beijing: China’s securities regulator has barred publicly traded companies from using proceeds from their stock sales to speculate in shares as it tries to damp overheating financial markets.
Companies also must not use the funds raised to buy derivative products and convertible bonds, said a China Securities Regulatory Commission statement today. The Beijing- based regulator said it will step up monitoring of the use of share-sale proceeds, without saying when the rules take effect.
“Regulators are concerned that proceeds are fueling the stock market frenzy,” said Gabriel Gondard, who manages the equivalent of $3.5 billion (Rs15,421 crore) at Fortune SGAM Fund Management, a venture of Societe Generale SA, in Shanghai. “The government wants to start seeing more of that money reinvested into the companies or distributed as dividends.”
China wants to curb speculation in the real estate and stock markets to break boom-and-bust cycles fueled by 33.5 trillion yuan (Rs1,90,72,643 crore) of household and corporate deposits. China’s cabinet approved a task force last month to clamp down on illegal share sales and other banned activities in the markets.
Since January, the nation’s banking watchdog has also cracked down on loans used to invest in property and shares. The benchmark Shanghai and Shenzhen 300 Index more than doubled last year.
The Shanghai-Shenzhen 300 Index gained 156% in the past 12 months after China ended a one-year ban on domestic stock sales in May to draw more of the nation’s savings into equities. The government must pay attention to “bubbles” in the stock market before they get too large, Cheng Siwei, vice chairman of the Chinese legislature, wrote in a commentary published 6 February in the Chinese-language Financial News.
Publicly traded companies must use share-sale proceeds as outlined in their prospectuses unless their stockholders approve changes, the securities regulator said today.
Financial institutions such as China Life Insurance Co. and Ping An Insurance (Group) Co., the nation’s two largest insurers, will still be able to invest in equities as allowed under their business scope.
Ping An made 4.3 billion yuan — more than a third of its total investment income in the first nine months last year — from equities and mutual funds, according to its domestic share sale document. The Shenzhen-based insurer raised $5 billion in a share sale in China this year.
China’s securities regulator Shang Fulin is reinforcing the policies of central bank Governor Zhou Xiaochuan as the government tries to cool an economy that expanded 10.7% last year. The nation’s stocks tumbled the most in 10 years on 27 February after the State Council task force was announced.