LexisNexis(TM) Academic - Document

LexisNexis(TM) Academic - DocumentCopyright 2005 The Financial Times Limited
Financial Times (London, England)

July 4, 2005 Monday
London Edition 2

SECTION: COMPANIES INTERNATIONAL; Pg. 24

LENGTH: 587 words

HEADLINE: China plans stir up shareholder activism: Baosteel is the latest company to feel the pressure amid reforms of the country's struggling stock market struc

BYLINE: By GEOFF DYER

BODY:


China's plan to reform the shareholder structure of its struggling stock markethas provoked anunprecedented campaign of shareholder activism that is forcing the companies involved to revise their plans.

The latest company to feel the pressure is Baosteel, the largest steelmaker in the country, which was forced last week to raise its offer of compensation to shareholders, after an earlier proposal was heavily criticised by investors. Changjiang Power is also facing heavy pressure from investors to increase its offer.

"It is not just shareholder activism, it is a form of economic democracy at play here," says Joe Zhang, co-head of China research at UBS, the investment bank.

The government's reform plan is aimed at unwinding the huge number of shares in listed companies which are non-tradeable, an overhang that analysts have blamed for the prolonged slump in the mainland's stock markets.

Baosteel is one of 46 companies taking part in a trial reform under which they are to list the non-tradeable shares and in some cases gradually sell them down into the market. Baosteel, with about 78 per cent of its shares non-tradeable, has one of the highest proportions of non-tradeable shares among China's largest listed companies.

Most companies have offered some form of compensation to holders of the tradeable shares in return for the likely dilution of their stakes.

Of the four companies in the first round of the pilot programme, one had to substantially increase its offer to shareholders, while investors in another group rejected the offer.

A shareholder meeting at Citic Securities, one of the companies in the second round of the pilot programme, was regularly interrupted by heckling from angry investors and protests about its planned offer of compensation, according to people at the meeting.

Han Zhiguo, chief of research at Beijing Banghe Caifu, a consultancy, says the protests over compensation plans are the result of the long history of majority investors ignoring the rights of minority shareholders.

"With the even worse compensation plans coming out now, the minority shareholders feel even more helpless," he says. "The market has been beaten black and blue and is full of victims. There is no way these sufferers can be satisfied with the reform."

Mr Zhang at UBS says: "In the past people believed whatever the government said and did not take an interest. But now you have these people who are so angry because they have lost so much money and they are really interested in the subject. That is fuelling shareholder activism."

Baosteel's offer, which will be voted on at a shareholder meeting in August, is seen as crucial because it will set the tone for many other companies.

Jiang Zuoliang, chief investment officer at E-Fund Management in Guangzhou, says the reaction to Baosteel's revised offer is unclear. "It is a bit better than the draft one, but I am not sure whether it will pass or not. It is hard to say."

However, Chen Hong, chief investment officer at Fortis Haitong Investment Management in Shanghai, says the new offer was a considerable improvement. "Compared with the draft plan, Baosteel has shown its willingness to communicate with minority shareholders and accept their opinions."

In a separate development, the China Securities Regulatory Commission announced that Min'an Securities, a mid-sized brokerage, had become the latest lossmaking company in the industry to be closed down. Official media also reported that Eagle Securities in Shenzhen had been closed by the authorities.

LOAD-DATE: July 3, 2005