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Bourse bans buying stock with loans

(Shanghai Daily)
Updated: 2007-06-12 14:16

Listed firms must not use bank loans to trade equities and must seek shareholder approval if they make large investments, according to guidelines issued by the Shenzhen Stock Exchange.

Publicly traded companies can't use loans from commercial lenders to "directly or indirectly" invest in the stock market, according to guidelines sent to listed companies last month and obtained by Shanghai Daily yesterday.

A listed firm needs to gain approval from its board of directors if its stock investment is set to exceed 10 percent of net assets or goes beyond 10 million yuan (US$1.31 million) in value, the guidelines said.

If equity investment is expected to total more than 50 percent of net assets or 50 million yuan in value, the public company must gain approval from minority investors at a shareholder meeting.

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Publicly-traded firms can't use funds pooled from their initial public offerings to subscribe to other firms' new stock sales, additional offerings or directly invest in stocks, convertible bonds and other derivatives, the advice said.

Listed companies must reveal details of their securities investments, including the amount, the source of capital as well as risk-management plans in a timely manner, according to the guidelines.

Yuan equities on China's mainland have nearly tripled their value since the start of 2006 as domestic citizens channeled bank savings into rallying shares to make money.

However, stock-price rigging and insider trading have been mounting since early 2007, stoking regulatory jitters over a sudden market plunge triggered by battered investor confidence.

The China Securities Regulatory Commission in April started a campaign to battle against stock-related crimes, launching a series of probes into listed firms, fund managers and securities analysts.

The Shanghai and Shenzhen bourses also took action to curb insider dealings and misbehavior in the market, with moves to freeze some accounts allegedly involved in share-price manipulation.

Ordering listed firms to beef up disclosures on stock investments is aimed at "standardizing procedures to make securities-trade decisions and protecting illegal rights of public investors," the Shenzhen bourse said.