China’s securities regulator has released draft revisions of company rules that will broaden circumstances under which companies are permitted to buy back shares and simplify the procedures for buybacks.
The China Securities Regulatory Commission made the announcement before the market started trading on Sept 6.
More scenarios will be applicable for buybacks under the draft, including employee stock ownership plans, companies issuance of convertible corporate bonds and warrants, and other legal buybacks to protect companies’ credit and shareholders’ interest.
The treasury stock system will be introduced under the new rules.
As CSRC explained in the announcement, the current circumstances eligible for buybacks are “relatively narrow” and the procedure is “not simple enough”.
As a result, companies do not receive enough encouragement to undertake buybacks and the function of buybacks has not been given full play.
Jiang Qijia, senior analyst of the research department at financial services provider Noah Holdings Ltd, said that the draft has been introduced at this time to encourage companies to buy back their shares and stabilize the market, as the A-share market value is approaching its bottom and companies’ profitability mainly remains unchanged given their recently released interim results.
The benchmark Shanghai Composite Index fell to 2691.59 points on Sept 6, down 0.47 percent. The Shenzhen Component Index dropped 0.93 percent to 8324.16 points. The Shanghai Composite Index is down 19.6 percent since the start of the year.
Analysts from Haitong Securities wrote in a note that investors are holding a strong wait-and-see attitude at present. The market will need new signals before it makes a real rebound.
More than 220 billion yuan ($32 billion) of overseas investment has flown into the A-share market via the stock connect mechanism between Shanghai, Shenzhen and Hong Kong so far this year, as calculated by Noah.
