Listed companies were warned by the Shenzhen Stock Exchange against using the proceeds from equity sales to engage in venture capital investments in a move designed to protect shareholders from risk and get firms to focus on their core business.

The bourse said in a notice that it recently discovered some companies had raised more money in initial public offerings than planned. The rules will help regulate the use of these funds.

When proceeds are 20 percent higher than scheduled, listed firms should use the excessive funds in order of priority - replenish funds in planned projects, invest in new projects, repay bank loans and replenish working capital. The excess money must be saved in a special account, the bourse said.

The notice said rule breakers face trading suspensions.

Listed firms must pledge that they won't use the proceeds to invest in stocks or other high-risk projects within two years of new share sales.

The firms must inform investors when venture capital investments exceed 10 million yuan (US$1.46 million) and investments of more than 50 million yuan must gain approval from shareholders, the notice said.

New shares have been welcomed by investors after the securities regulator resumed IPOs in June.

Twenty-two companies raised 14.9 billion yuan more than they planned in recent IPOs.

The bourse said in a separate notice that lockup shareholders must apply five days ahead of a planned sale of their holdings. Companies need to file a statement three days ahead of a lockup period expiry, the bourse said.

(Shanghai Daily September 17, 2009)