Baoshan Iron & Steel Corp, the nation's leading steel maker, yesterday issued a trial edition of its compensation proposal to its fund managers, the firm's main trading shareholders.

Baosteel plans to pay its non-tradable shareholders one share for each 10 shares held in order to float its non-tradable shares. It will also offer warrants to protect public investors from market risk.

If the price of Baosteel shares falls once they are all tradable, public investors will be able to sell five shares at 5.12 yuan (62 US cents) each back to the company, for every 10 shares held.

When the price picks up value, public investors have the right to buy two shares at 4.18 yuan (51 US cents) for every 10 shares held, according to the proposal.

The blue chip company went public in 2000 by selling 1.88 billion shares at 4.18 yuan (51 US cents) and issued 2 billion additional shares in May at 5.12 yuan (62 US cents). The stock last traded at 4.89 yuan (59 US cents), but dealing was suspended on Monday when the firm was picked as a pilot for State share sale reform, with 41 other firms.

Market traders have been complaining about what they see as inadequate compensation.

"The company should pay more to the tradable shareholders. One for 10 is too small and two for each 10 held is acceptable," said Jiang Wen, a trader based in Beijing.

The four firms involved in the first round of pilots paid at least 2.5 shares to their public investors for every 10 held.

Meanwhile, many analysts expressed their aversion to the method of warrants.

Most investors are not familiar with warrants, which were launched when China established its stock market 13 years ago, but were suspended in 1996 because of misuse by speculators, said Zhang Weixing, a famous economist in Beijing.

In the middle of this month, the Shanghai and Shenzhen stock exchanges announced they were considering launching warrants again, offering investors financial tools with which to tackle dramatic hedge price fluctuation.

Although warrants are widely used on international markets, it is a new concept in China.

Baosteel promised not to put its originally non-tradable shares on the market within two years of all shares being floated.

Within three years of the reform, the newly traded shares will be at most 5 per cent of its total capitalization at a price of at least 5.63 yuan (68 US cents).

(China Daily June 23, 2005)