China turns to share buybacks

By BLOOMBERG

HONG KONG • Add share buybacks to the long list of measures that China’s announced to stem a rout in its stock market, the worst performing in the world this year.

After a faster than usual revision to law, companies can repurchase shares with approval from at least two thirds of the board if deemed necessary to protect shareholders’ interests, or if it’s for convertible bonds exchange, the National People’s Congress said last Friday.

Firms were previously only allowed to buy back shares for purposes including stock incentives, and it was mandatory to go through shareholder meetings for approval. Many are already jumping in.

Real-estate company Xinhu Zhongbao Co Ltd surged as much as 8.9% after saying late on Sunday it will repurchase more shares, while Meisheng Cultural & Creative Corp soared 10% as it pledged to buy back up to 200 million yuan (RM120.1 million) of stock. Not all were lifted — drugmaker Tonghua Dongbao Pharmaceutical Co dropped to a three-year low despite promising repurchases.

The new law allows companies to react much faster during market corrections, China Galaxy Securities Co wrote in a report yesterday, adding that long processing time made it much less common for firms to conduct buybacks compared to those registered in Hong Kong and overseas.

Xinhu Zhongbao and Meisheng also saw their gains fading, as the wider market declined. The Shanghai Composite Index fell 2.2% yesterday, while the large cap FTSE China A50 Index tumbled as much as 4.4%, hurt by disappointing earnings from liquor makers to coal producers.

The Shanghai Composite has fallen 23% this year and is in line for its worst annual performance in a decade. That’s prompted the government to announce measures to restore confidence, promising support for the private sector and easing share-pledging risks.