Bank stocks head up­ward on pre­ferred share re­ports

China Daily (Canada) - - BUSINESS - By GAO CHANGXIN gaochangxin@chi­nadaily.com.cn

Bank­ing shares are poised for a sus­tained rally, an­a­lysts said, as re­ports on Thurs­day said reg­u­la­tors will soon let qual­i­fied com­pa­nies is­sue pre­ferred stocks for the first time.

The China Se­cu­ri­ties Jour­nal re­ported that rules will come out soon gov­ern­ing pre­ferred stocks, a spe­cial class of shares that have the prop­er­ties of both an eq­uity and a debt in­stru­ment. The first is­suance will hap­pen in the sec­ond half of the year. Can­di­dates in­clude banks and en­ergy com­pa­nies that have a high debt ra­tio, ac­cord­ing to the re­port.

Bank­ing shares, the

price

of which has been on a low over the past two years, jumped on the new­sonThurs­day. In­dus­trial and Commercial Bank of China Ltd, the big­gest stock in­China by mar­ket cap­i­tal­iza­tion, grew 1.24 per­cent to 3.27 yuan a share. Shang­hai Pudong De­vel­op­ment Bank, a city commercial bank based in Shang­hai, jumped by 3.27 per­cent to 8.84 yuan a share. Only three of the 45 shares in the fi­nan­cial sec­tor closed lower on Thurs­day.

The Shang­hai Com­pos­ite In­dex gained 1.07 per­cent, or 21.42 points, to 2,019 points, mov­ing back above the psy­cho­log­i­cally im­por­tant level of 2,000 points. The in­dex has lost 3.78 per­cent this month on dis­ap­point­ing macroe­co­nomic data.

The CSI 300 In­dex of the big­gest shares in both Shang­hai and Shen­zhen rose 1.2 per­cent to 2,140.33 points.

The China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion first started dis­cus­sions about pre­ferred stocks at the start of the year. It’s widely in­ter­preted that it’s to help big Sta­te­owned com­pa­nies, es­pe­cially lenders, to raise cap­i­tal, al­though an of­fi­cial with the com­mis­sion said this week that there are no in­dus­try and mar­ket cap­i­tal­iza­tion re­stric­tions for pre­ferred stock is­suers.

“Pre­ferred stocks are fa­vor­able for lenders be­cause it al­lows them to raise funds at a lower cost and with­out fur­ther di­lut­ing their val­u­a­tion,” said Zhang Qi, a Shang­hai-based an­a­lyst with Haitong Se­cu­ri­ties Co Ltd.

Pre­ferred shares pay fixed div­i­dends and are re­paid be­fore com­mon stocks if bankruptcy strikes. They nor­mally do not trade on the open mar­ket, carry no voting rights and do not di­lute net prof­its at­trib­ut­able to share­hold­ers.

Chi­nese lender’s val­u­a­tions have sunk over the past year to his­toric lows as in­vestors spec­u­late that fur­ther in­ter­est rate lib­er­al­iza­tion will fan­com­pe­ti­tion and squeeze profit mar­gins. Cen­tral bank Gover­nor Zhou Xiaochuan said on Tues­day that the ceil­ing for de­posit rates will be re­moved in one to two years. Chi­nese banks aver­age price-earn­ings ra­tio, a gauge of val­u­a­tion, was 4.5 in Fe­bru­ary, com­pared with the A-share mar­ket aver­age of 9.4 and 10.4 in theHong Kong mar­ket.

Guo­jin Se­cu­ri­ties said a re­port on Thurs­day that Chi­nese lenders’ fi­nanc­ing cost for pre­ferred shares will be around 8 per­cent, sub­stan­tially lower than the 20 per­cent for com­mon stocks.

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