Stocks News
- Speculating with IPO proceeds barred
Date: 21-Mar-2007 Sources: (Shenzhen Daily)
THE country's securities regulator barred companies from using proceeds from share sales to invest in stocks, in an attempt to damp overheating financial markets.
Companies are also banned from buying derivatives and convertible bonds with share sale proceeds, the China Securities Regulatory Commission said in a statement yesterday.
China wants to curb speculation in the real estate and stock markets to break boom-bust cycles fueled by 33.5 trillion yuan (US$4.3 trillion) 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.
Since January, the nation's banking watchdog has also cracked down on bank loans used to invest in property and shares. The benchmark Shenzhen and Shanghai 300 Index more than doubled last year.
Zhengzhou Yutong Bus Co. and Finance Street Holding Co. are among the companies that said this year they plan to use some of the proceeds from prior share sales to invest in the initial public offerings of Chinese companies.
In December, China's banking regulator sent out a statement, urging banks to stop lending for stock investments and to recall outstanding share loans. In January, the watchdog told domestic banks to strengthen efforts to rein in property loans to help slow an economy that grew the fastest in 11 years in 2006.
The Shanghai-Shenzhen index tumbled 9.2 percent Feb. 27, the most in 10 years, on concern about government efforts to prevent over investment in shares.
'The Chinese Government similarly cracked down on share sale proceeds going into stocks in 1996 and 1997, when the markets were also soaring,'' said Stephen Green, senior economist at Standard Chartered Plc in Shanghai.
Publicly traded companies must use share-sale proceeds as outlined in their prospectuses unless their stockholders approve changes, the securities regulator said yesterday.
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.
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