NPC amends Com­pany Law, mak­ing stock buy­backs eas­ier

Global Times US Edition - - BIZMARKETS -

China’s top leg­is­la­ture the Na­tional Peo­ple’s Congress on Fri­day adopted re­vi­sions to the Com­pany Law, which re­laxed re­stric­tions on pub­lic com­pa­nies mak­ing stock buy­backs, China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion’s (CSRC) said in a state­ment.

Com­pa­nies were pre­vi­ously banned from buy­ing back their pub­licly traded shares ex­cept un­der four cir­cum­stances, such as when grant­ing em­ploy­ees eq­uity in­cen­tives.

In a sign of fur­ther loos­en­ing the re­stric­tions, the re­vised law al­lows listed com­pa­nies to buy back trade shares if they use them to is­sue con­vert­ible bonds or when the com­pa­nies act to de­fend their cor­po­rate value and pro­tect share­hold­ers’ in­ter­ests. The re­vised law goes into ef­fect im­me­di­ately.

Re­stric­tions on de­ci­sion-mak­ing pro­ce­dures as well as how long com­pa­nies can hold the re­pur­chased stock have also been re­laxed un­der the new law.

Share re­pur­chas­ing is be­lieved to be a nec­es­sary cor­po­rate tool in con­duct­ing merg­ers, ac­qui­si­tions and re­struc­tur­ing, and plays a vi­tal role in im­prov­ing gov­er­nance struc­tures and sta­bi­liz­ing share prices.

The re­vised law im­proves the fun­da­men­tal sys­tem of the do­mes­tic fi­nan­cial mar­ket and helps to push for­ward fi­nan­cial re­forms while also con­tribut­ing to the qual­ity of listed firms. An­a­lysts be­lieve stock re­pur­chase op­er­a­tions could send a pos­i­tive sig­nal to the mar­ket and al­le­vi­ate mar­ket jit­ters in cases of ex­ten­sive un­der­es­ti­ma­tion of shares.

“The move, com­ing at a time when China’s stock mar­kets are in fluc­tu­a­tion, is also aimed at ral­ly­ing mar­ket con­fi­dence and prevent­ing dras­tic fluc­tu­a­tions,” Yang Delong, chief econ­o­mist of First Seafront Fund, said in a state­ment sent to the Global Times over the week­end.

Data from the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion shows com­pa­nies listed on the Shang­hai and Shen­zhen ex­changes have car­ried out 2,169 share re­pur­chases since 2014, with a to­tal net worth of nearly 53 bil­lion yuan ($7.63 bil­lion).

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