HONG KONG (Reuters) - China is planning to roll back curbs on private share placements by companies to improve their access to funding as part of efforts to ease strains on businesses and the economy, financial magazine Caixin reported on Wednesday.
The curbs were put in place by regulators two years ago amid concerns about abuse by companies and investors and a lack of transparency on such share sales, which were frequently below the stock’s last openly traded price.
The China Securities and Regulatory Commission (CSRC) is working on changes to the rules such as limits on the sale of shares bought via private placements and the mechanism for pricing shares in private offerings, Caixin said, citing sources close to the regulator.
Private placements in China jumped five-fold from 2013 to $172 billion in 2016, skirting regulators’ controls on initial public offerings (IPOs) and raising concerns that companies were raising too much money for inefficient or speculative purposes.
That prompted new rules from the CSRC in early 2017 limiting the size of such fundraisings to no more than 20 percent of a company’s capitalization, requiring an 18-month gap in between private offerings, and excluding some sectors altogether.
However, the crackdown on private placements meant many firms had to turn to raising debt instead, adding to the sizeable corporate debt burden in China.
A multi-year regulatory crackdown on riskier types of financing and debt limited many companies’ access to funding last year, leading to the biggest-ever year for onshore defaults and a sharp tail-off in investment that weighed on the economy.
More companies than ever are missing payments this year, highlighting a continued cash crunch as Beijing backs off from broad policy easing.
Reporting by Julia Fioretti; Editing by Kim Coghill