Investors holding more than 30 percent in a listed company will no longer be required to make an offer to buy all of the company's shares under a new rule aimed at encouraging more mergers and acquisitions (M&A) in the equities market.

 

The new rule, effective from September 1, was released by the China Securities Regulatory Commission (CSRC) late on Monday and is expected to give more options to buyers, reduce takeover costs and increase takeover efficiency.

 

Under the current ruling issued in 2002, if a potential buyer wants to acquire a share of more than 30 percent in a listed company, it must make an offer for all outstanding shares unless it gets an exemption from the CSRC. This rule has thwarted many potential acquisitions of listed companies as a result.

 

The new rule, by releasing investors from buying all outstanding shares when taking control of a listed company, will establish a more flexible tender offer system, providing the acquiring company with more options.

 

"It will certainly lead to more mergers and acquisitions of public companies," said Zuo Xiaolei, chief economist with Galaxy Securities.

 

The rule also stipulates that investors taking control of five percent of a listed company are required to make a public announcement; and if an investor holds a stake of over 20 percent it should make a detailed disclosure of its financial status.

 

"By increasing the acquirer's transparency, it (the rule) will protect the interests of small investors," the CSRC said.

 

"Mergers and acquisitions can effectively strengthen listed companies' competitiveness and increase their value," it said.

 

But the announcement of the new rule did not bring about a recovery in yesterday's sluggish stock market.

 

China's stock market closed flat yesterday. The benchmark Shanghai composite index ended at 1600.87 points after recovering from a 1.05 percent drop in the morning session. Turnover in Shanghai A shares was a thin 15 billion yuan (US$1.88 billion), down from Tuesday's 17.8 billion (US$2.23 billion).

 

"The market continued on a downward trend in the morning due to the pressure formed by a slew of new initial public offerings (IPOs), but blue chips including Sinopec and Bank of China started to climb after days of slump, and this led the market to finally end flat," said Yu Jun, an analyst with CITIC Securities.

 

Sinopec rose 1.22 percent to close at 5.81 yuan (72.6 US cents) on yesterday's market, and Bank of China rose 0.90 percent to close at 3.35 yuan (41.9 US cents).

 

"Generally speaking, investors demonstrated a hesitant attitude to the market because the prospects are somehow unclear as the market's ability to absorb new listings may be fading for the short term," Yu said.

 

Shares in the newly listed Daqin Railway Co Ltd rose 3.8 percent to end at 5.73 yuan (71.6 US cents). But their performance during their first trading day was far more muted than expected. Some traders had hoped the shares would double from their IPO price of 4.95 yuan (61.9 US cents).

 

"It is good news for Daqin Railway to have a rise on yesterday's market. Investors are not as interested as they were before when a new IPO comes on the market," Yu said.

 

"On the other hand, the company is near to concluding a period of fast growth; unless it has new mergers and acquisitions to trigger a new growth cycle, investors will not have strong interest in it," the analyst said.

 

China Vanke, the nation's biggest publicly traded property developer, yesterday rose 0.53 percent to close at 5.64 yuan (71 US cents) after the company said its first-half profit jumped 59 percent as higher incomes and economic growth drove up demand for apartments and offices.

 

(China Daily August 3, 2006)