Baosteel Group, China's largest steel producer, said yesterday it'll offer stock option incentives to its management making it the first central, state-owned enterprise (SOE) to introduce such a scheme.

The firm's statement comes two weeks after the authorities announced a stock option incentive scheme for domestically listed SOEs.

Baosteel, recently rated as having an excellent credit rating by Standard & Poor's, said yesterday in a filing to the Shanghai Stock Exchange that offers will be made to board members, senior management and other selected staff to buy the company's shares at below stock market prices.

Each qualified person will be permitted to hold no more than 1 percent of Baosteel stock and they'll be required to hold the shares for at least two years. At least five board members including company President Xu Lejiang will benefit from the scheme, Baosteel said. They didn't disclose how many shares were to be offered.

Stock option schemes, one of the most popular employee-incentive plans adopted in Western countries, can produce greater commitment and loyalty from employees as it gives them a chance to share in the firm's growth potential.

The State-owned Assets Supervision and Administration Commission promulgated a stock-option incentive scheme for domestically listed SOEs on December 6. Baosteel is the first central SOE to adopt such a scheme but others are expected to follow. 

The announcement boosted Baosteel's shares yesterday. The company opened at a higher price of 7.82 yuan (99 US cents) yesterday and surged more than 6 percent to 8.34 yuan (US$1.1) in early trading before ending the day at 7.9 yuan (US$1).

The Shanghai composite index surged more than 2 percent in early trade before falling back into negative territory in the late morning. It posted an all-time closing high of 2,364 points.

"The announcement of stock incentive plans is no doubt good news for small-and medium-sized shareholders," said Zhao Zhicheng, a steel analyst with Guangda Securities in Shanghai.

"Shareholders expect the senior management of the firm will be more concerned about Baosteel's development and more diligent as their personal benefits are now linked to the company's market value," he said.

The highest price yesterday, a 6.6 percent increase from the opening, was a reflection of this confidence, he added.

According to a recent Standard & Poor's report Baosteel, which ranks fifth in the world with an annual steel output of 20 million tons, has one of the best credit ratings in the world. The company was given A-, up from BBB+, becoming one of only two global steel companies with that rating.

A statement from Baosteel said the upgrade reflected Standard & Poor's confidence in the company and would help raise more funds on overseas capital markets.

Baosteel plans an overseas listing by 2010 while targeting Japan's Nippon Steel Corp and South Korea's POSCO as strategic partners. Such a tie-up, which is likely to happen through cross-shareholding in each company, would be an important step towards Baosteel's overseas listing.

(China Daily December 20, 2006)