NPC amends Company Law, making stock buybacks easier
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).