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SHANGHAI (Reuters) - China has issued a slew of new rules in recent weeks aimed in part at boosting shares of blue-chip companies.
Below is a summary of the new rules. All were issued by the China Securities Regulatory Commission, unless otherwise stated.
- Companies that buy listed shell companies must meet the same requirements as firms applying for initial public offerings. Previously, because of a lower threshold for "back-door" listings, weak listed firms have been a favorite target for speculators betting the firm may be purchased for use as a shell.
- Purchases of shells on the ChiNext market, China's Nasdaq-style start-up board, is banned due to the high risk of investment in small start-up companies.
CASH DIVIDEND GUIDELINES
- At mature listed firm with no major short-term cash needs, cash dividends should account for at least 80 percent of profit distribution. In the past, listed firms have frequently issued bonus shares as a substitute for cash dividends.
- At mature listed firm with major short-term cash needs, cash dividends should account for at least 40 percent of profit distribution.
- A growing listed firm with short-term major cash demand, cash dividends should account for at least 20 percent of profit distribution.
- Preferred shares will offer companies a new fundraising channel. The number of preferred shares issued by a listed firm must not exceed 50 percent of the number of its ordinary shares, and funds raised via preferred share issuance must not exceed 50 percent of the firms' net assets before the issuance. (Issued by the State Council, China's cabinet)
- Listed banks are especially encouraged to issue preferred shares, since they need to raise capital to meet new capital adequacy requirements under Basel III.
- Pre-IPO shareholders are permitted to sell a portion of their existing shares at an IPO offering if they have already held the shares at least for 36 months.
- If the owner of a stake worth more than 5 percent of a listed company wants to reduce his stake, he must disclose his intention three days in advance. This measure could reduce investor interest in buying small cap shares.
- Controlling shareholders and senior managers of listed firms who sell their holdings within two years after the lock-up period expires may not sell at a price lower than the IPO price.
- Any firm whose share price trades below its IPO price for 20 consecutive days within six months of its debut will have its share lock-up period automatically extended by six months beyond the original lock-up period.
- First-day rises for newly-listed shares on the Shanghai and Shenzhen stock exchanges will be capped at 44 percent above the IPO prices starting January 1, 2014. (From the exchanges)
- Both exchanges will adopt a system in which the shares will be temporarily suspended if they rise 10 percent and again at 20 percent from their opening prices. (From the exchanges)
- The Shanghai bourse will also monitor accounts trading new shares and identify those engaged in unusual trading as "unqualified investors". (From the Shanghai exchange)
(Reporting by Lu Jianxin and Gabriel Wildau; Editing by Jacqueline Wong)