Center

Ban on stock-sale funds for IPOs

(Shanghai Daily)
Updated: 2007-03-15 16:08

China will soon issue rules to ban mainland-listed companies from using stock-sale proceeds to invest ininitial public offerings as such irregularities popped up under the current bullish sentiment.

The proposed regulation has halted a plan by Financial Street Holding Co to invest earlier-raised capital in new stock subscriptions, the Shenzhen-listed firm said in an exchange filing on Wednesday.

Public firms will also be prohibited from investing the money they raise in stocks, convertible bonds and upcoming financial derivatives, according to the statement.

The funds can only be used as originally planned, such as replenishing working capital to focus on the firms' core businesses, the statement said.

A spokesman at theChina Securities Regulatory Commissiondeclined to comment on the issue yesterday.

China's benchmarkShanghaiComposite Index soared 130 percent last year on improved market conditions and restored investor confidence.

Domestic citizens have been diverting bank savings to securities investments in pursuit of higher returns. A lot of them use the bulk of the money to apply for new stocks as mainland firms usually feature staggering trading debuts amid abundant liquidity.

So far this year, more than 20 listed companies have used 10 billion yuan (US$1.29 billion) from their stock-sale proceeds to solely subscribe for IPOs, the Securities Times reported yesterday, citing its own calculation.

"New stock sales are not risk-proof," said Wu Zhiguo, a Guohai Securities Co analyst. "As the market matures, you will see companies' valuations move in line with their growth prospects. If being priced at a high level, a firm will also dip on its first trading day."

Chinese authorities are on track to urge listed firms to beef up information disclosures and adopt new accounting standards as part of efforts to shore up corporate governance.

The stock regulator is also prompting major shareholders to return the money they illegally embezzled from listed arms and has imposed trading limits on companies refusing to do so.