Preferred shares widen firms’ fund options
Print Edition
CHINA will open a pilot program of allowing 50 biggest listed companies with strong liquidity to issue preferred shares as the government seeks to expand their funding options.
The 50 companies with good liquidity and tracked by the SSE 50 Index are listed on the Shanghai Stock Exchange, the China Securities Regulatory Commission said in a statement released after the market closed yesterday.
Other listed firms are also allowed to issue preferred shares if the proceeds are used to pay for acquisitions and buybacks, the CSRC said.
Preferred shares have priority over common shares in dividend payments and liquidation proceedings, but holders of preferred shares have no voting rights in most cases.
Fundraisers find selling preferred shares attractive because it enables them to raise money without diluting the value of existing common shares. With stable dividend payment, preferred shares are attractive to value-oriented long-term investors.
“Lenders who are in need of capital replenishment as well as electricity generators, property developers and utility companies with high debt ratio are likely to be the biggest beneficiaries from the issuance of preferred shares,” said Everbright Securities.
CITIC Securities said in a report earlier that preferred shares would enable China’s commercial banks to raise funds to meet the tougher Basel III capital requirements without adding pressure on common share investors.
Listed companies, excluding listed commercial banks, can’t sell convertible preferred shares that can be converted into common shares at the option of the holders in order to protect the interest of ordinary investors, said the CSRC.
Non-listed firms are also allowed to issue preferred stock through private investment.
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