Blow for China B-share holders
Geoff Dyer, FT Syndication Service
SHANGHAI: Government plans to overhaul the shareholding structure of mainland companies could prove costly for holders of China's foreign currency B-shares, if the cases of two companies undertaking the reforms is any indication.
Holders of foreign currency shares listed in China will riot receive any compensation from the first two companies with this type of equity to take part in a government plan to overhaul the stock market.
China Vanke, a property company, and bicycle-maker Shanghai Forever last week became the first companies with local and foreign currency shares to outline a plan to eliminate the overhang in their shareholding structure from government-owned non-tradable shares.
The companies said holders of their A-shares, which are denominated in renminbi, would be offered compensation as part of the plan to list all the companies' equity. However, the B-shareholders - the foreign currency shares - are to receive nothing.
The B-share market was introduced to allow Chinese companies to raise funds in foreign currencies. In the mid-1990s it was the main way for foreigners to invest in Chinese stocks. Most B-shares are believed to be in the hands of domestic investors.
Eighty-six of the nearly 1,400 listed companies in mainland China have A and B shares. But the B-share market has been stagnating since regulators permitted Chinese companies to list overseas in 1997 and later allowed foreigners to invest directly in the A-share market.
The government is pushing through a plan to unwind the two-thirds of equity in listed companies that are not traded because it believes this has been a main cause of under-performance of the market.
In September regulators said it was up to individual companies to decide whether to compensate B-shareholders, which analysts took as an indication they would receive no recompense.
The decision to exclude the B-shares comes when the government is examining plans to abandon the B-share market.
Officials had hoped to resolve the issue this year. However, any decision appears to have been delayed while the overhaul of the A-share market is implemented.
Several proposals on the matter have been discussed, including merging the A- and B-share markets, encouraging companies to buy back their B-shares and transferring B-shares to the Hong Kong market.
Haitong Securities, a Shanghai brokerage, put together a proposal to transform all B-shares into A-shares at a ratio of 1:1. But the plan was rejected by the regulator "because they don't want to complicate the A-share reform by adding B shares into the plan", said Zhang Qi, an analyst at Haitong.