China state share reduction plan involves placements/buybacks/non-state sales

SHANGHAI (AFX-ASIA) - China's plan for the reduction of state shares in listed companies involves the placement of some of these shares via the secondary market, an official responsible for drafting the plan said, according to the China Business Times.

          The official said this is one of the four methods detailed in the plan, which is awaiting approval from the State Council, while the others involve the issue of state shares during initial public offerings and additional share offers, the sale of the shares to non-state enterprises and the repurchase of shares by the listed firms.

          The sale of state shares will be carried out on condition that there is no outflow of state assets.

          As long as this condition is met, the market will be allowed to determine the price for the sale of state shares, the official said.

          The plan will initially involve the trial reduction of a few companies' state shares, the official said, adding that there is no timetable for state-share reductions or for the total value or quantity of state shares to be sold off.

          The size and speed of state share reductions will be determined by the market.

          The official added that the state share reductions will not be carried out exclusively via the stock market, noting that only two of the four methods -- placements and the issue of shares during IPOs and additional share offers -- will result in an expansion of the market's capitalisation.

          The method of placing shares to the market involves determining how many state shares need to be sold on the basis of the annual shortfall in social security funds but not fixing a price at which these shares should be sold, the official said.

          The second reduction method involves taking 10 pct of a company's state shares and issuing them publicly during an IPO, the official said, adding that the proportion of a company's state shares to be issued during IPOs may gradually be increased above 10 pct.

          Travelsky Technology Ltd issued state shares worth 130 mln yuan during its H-share IPO in January and this method will also be applied to domestic IPOs.

          It will also be applied to rights issues and additional share offers.

          The third method -- the sale of state shares to non-state enterprises -- will become possible following the release of a document allowing the sale of the shares to non-state entities, the official said, adding that it is very possible the share sales will take place slightly above net asset value.

          Under the fourth method, listed companies will use their own funds to buy back shares, which will subsequently be cancelled.

          This method has already been used by A-shares Yunnan Yuntianhua Co Ltd, Shenergy Co Ltd and Changchun High & New Technology Industries (Group) Co Ltd.

          The official said 20 pct of the proceeds from the repurchase of state shares by listed firms and the sale of the shares to non-state firms will accrue to the central government, while the remaining 80 pct will go to the enterprises selling the shares.

          When state shares are placed to the secondary market, the proportions accruing to central and local governments will be either 30 pct and 70 pct, or 40 pct and 60 pct.

          When state shares are issued via IPOs or additional share offers, all of the proceeds will accrue to central government.

          The central government has not yet decided how much of its proceeds from the state share reductions will be injected into social security funds and how much will be reinvested in the stock market, the official said.

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