The nation's shares closed at the highest level in more than 17 months yesterday, following news that companies on the Chinese mainland will soon be allowed to resume raising capital on domestic stock exchanges.

 

The benchmark Shanghai composite index finished at 1,378.614 points, its highest closing level since November 22, 2004, when it ended at 1,383.02 points.

 

The China Securities Regulatory Commission (CSRC) said in a statement on Sunday that it would once again allow companies to float shares on the Shanghai and Shenzhen stock exchanges after almost a one-year suspension.

 

Companies will first be allowed to sell shares to selected investors through placements, then to sell additional shares and lastly to launch initial public offerings, according to the statement.

 

The regulator didn't give specific dates for the plans, but CSRC spokesman Dai Biao said that capital raising would start before May 1.

 

Initial public offerings have been suspended since May 2005 as the government started the securities reform to convert about US$210 billion of non-tradable State-owned shares of domestically listed companies into stock that could be bought and sold on the market.

 

Based on yesterday's market performance, analysts predict the country is running toward a bullish market and the index could rise to 1,400 points in coming weeks.

 

However, some also warned investors that the market might have already reached a periodical climax and would take a while to surge upward again.

 

"It may have already touched the highest points in the first half year, but still have chance to climb up in the next half year." Cheng Weiqing, analyst with CITIC Securities, said.

 

The CSRC's statement also paved the way for overseas-listed Chinese companies that want to list at home to return to domestic bourses.

 

For Hong Kong-listed Air China, the regulator's move to allow firms to sell shares domestically "will provide a new financing platform for Air China," said Rao Xinyu, Air China's secretary of the board. "After listing in Hong Kong for more than one year, we also want to get recognition from domestic investors."

 

Air China plans to sell no more than 2.7 billion yuan (US$338 million) of its A shares at the Shanghai Stock Exchange, or about 28.62 percent of its existing share capital, to qualified institutional investors, the company said earlier in February.

 

Analyst pointed out that allowing companies like Air China to sell shares domestically may help boost the combined value of the stock markets in Shanghai and Shenzhen.

 

The CSRC yesterday detailed draft rules on the issues surrounding capital raising and is seeking public comment on the rules until Saturday.

 

The rules are aimed to provide a more market-oriented pricing mechanism for new shares, control the use of proceeds and encourage companies to pay dividends to shareholders.

 

According to the draft rules, the first companies allowed to sell new shares are those that completed the process of converting their non-tradable stockholdings more than six months ago.

 

The rules are also streamlining the process for companies seeking to sell additional new shares. Within six months of getting approval from the commission, companies can choose when to sell the shares.

 

Companies that sell shares publicly must use a sales manager, though they will be allowed to conduct private placements themselves.

 

Companies can sell shares through private placement to no more than 10 strategic investors. The proceeds from such share sales should not be used to buy securities or invest in companies whose main businesses are related to securities.

 

The regulator will allow companies to issue warrants attached to corporate bonds to help develop the bond market, it said in the statement.

 

A warrant is a company-issued certificate that represents an option to buy a certain number of securities at a specific price before a predetermined date. A warrant has its own value and can be traded on the open market.

 

(China Daily April 18, 2006)