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Monday June 25, 2018

Stock Indices (Friday)

Shanghai Composite Index

Shanghai B

Shenzhen Component Index

Shenzhen B

Last 289.63 Open 285.26 High 289.77 Low 284.93 Change 1.36%

Last 9,409.95 Open 9,247.02 High 9,416.09 Low 9,172.30 Change 1.00%

Last 1,064.50 Open 1,058.76 High 1,064.82 Low 1,056.33 Change 0.43%

Last 2,889.76 Open 2,855.58 High 2,891.97 Low 2,837.14 Change 0.49%

Chinese RMB

100 Hong Kong dollars 82.61100 U.S. dollars 648.04 100 Japanese yen 5.8944 100 Euros 752.06 100 British pounds 858.61100 Swiss francs 653.78 100 Canadian dollars 486.65 100 Australian dollars 477.99 100 Singapore dollars 477.28

Hong Kong dollar 7.8459 Japanese yen 109.85 Euro 0.8581 British pound 0.7540 Swiss franc 0.9878 Canadian dollar 1.3268Australian dollar 1.3440 Singapore dollar 1.3579

U.S. dollar

Exchange Rates (Sunday)

DOMESTIC smartphone maker Xiaomi Corp. said Saturday there is no time frame for a mainland share offering, a delay that could affect China’s plans to lure its tech giants to list in the domestic market.

Xiaomi had been expected to raise up to US$10 billion, split between its Hong Kong and mainland offerings. But it last week postponed its mainland share offering until after it com-pletes its scheduled July 9 listing in Hong Kong.

It did not say when it would restart its China depositary receipts (CDRs) issuance pro-cess or why it was postponing the mainland offering.

“We’ve had many rounds of discussions with the regulators and reached a consensus that to ensure the quality of our CDR issuance, it’s better that we go public in Hong Kong fi rst,” Xiaomi’s chief fi nancial offi cer, Chew Shou Zi, told a news con-ference in Hong Kong.

Xiaomi, which also makes Internet-connected devices, awarded its chief executive and co-founder Lei Jun about US$1.5 billion worth of shares for his contribution to the company, it said in an updated regulatory fi ling last week, in one of the largest one-off share-based cor-porate bonuses in years.

The US$1.5 billion stock,

which has been awarded to Lei’s holding entity — Smart Mobile Holdings Ltd. — was recorded by Xiaomi as share-based com-pensation expenses April 2, one month before it fi led for its block-buster Hong Kong IPO.

Xiaomi is the latest high-pro-fi le company to lavish its senior executives with large stock awards ahead of a stock market fl otation in recent years.

Its co-founder and president, Lin Bin, defended the board’s decision on the compensation.

“Many new-economy com-panies have compensated their chairmen or CEOs with stocks ahead of the IPOs. Xiaomi isn’t the fi rst and won’t be the last to do so,” he said at the news conference.

Lin added Xiaomi’s board unanimously agreed on the stock award to Lei.

E-commerce fi rm JD.com awarded CEO Richard Liu stocks worth nearly US$900 million at the fi rm’s IPO price, ahead of its New York listing in 2014.

Xiaomi has lined up US$548 million from seven cornerstone investors including U.S. chip-maker Qualcomm Inc. for its Hong Kong IPO.

It is selling about 2.18 billion shares at a price range of HK$17 (US$2.17) to HK$22 each, rep-resenting a multiple of 22.7-29.3 times its 2019 earnings forecast by its underwriters. (SD-Agencies)

Xiaomi has no time frame for CDRs

Suning, RT-Mart team upEmployees work at a logistics base of Suning in Nanjing, Jiangsu Province, in this fi le photo. E-commerce giant Suning has part-nered with superstore chain RT-Mart to sell home appliances, computer, communication and consumer electronics products (3C products). Suning will provide home appliances and 3C products centrally purchased from its supply chain to RT-Mart’s current 393 outlets on the Chinese mainland and new ones in the future, Xinhua reported Friday. SD-Agencies

CHINA will open its national over-the-counter (OTC) equity market to foreign investors, the operator said Friday, in the country’s latest move to deregu-late its capital market.

So far, foreigners under the Qualifi ed Foreign Institutional Investor (QFII) program, and its renminbi (yuan) sibling RQFII, can buy China-listed A shares as well as bonds.

QFII and RQFII investors as well as qualifi ed overseas strate-gic investors will now be allowed to invest in China’s main OTC market, also known as the New Third Board, the board’s opera-tor said in a statement Friday.

The move is aimed at actively utilizing foreign investment to promote high-quality develop-ment of China’s economy, the National Equities Exchange

and Quotations (NEEQ) said in the statement.

China has stepped up deregu-lating its capital markets. Earlier this month, the govern-ment eased restrictions on QFII investment, allowing foreign investors to move money out of China more easily.

The New Third Board, launched in 2013, is home to over 11,000 startups. (SD-Agencies)

OTC equity board opens to foreign investors

MORE than 5 trillion yuan (US$770 billion) in shares, or about 12 percent of the country’s market capitalization, have been pledged as collateral for loans, according to data compiled by China Securities Co.

The pledges, popular among company founders and other major shareholders in need of cash, have become a growing source of concern for analysts and the government after the Shang-hai Composite Index last week tumbled to within a few points of its fi rst bear market since the aftermath of the 2015 crash.

The worry is that pledged stocks will be liquidated, drag-ging down prices, if borrowers can’t meet demands for addi-tional collateral.

While it was said that regulators had told brokerages last week to seek government approval before dumping large chunks of pledged stock, some analysts say the threat of forced sales will continue to hurt the market.

UBS Group AG estimates that about US$68 billion in shares have dropped to levels below the threshold for liquidation.

“It will remain one of the major overhangs for the stock market in the near term,” said Hao Hong, chief strategist at Bocom Inter-national Holdings Co.

Regulators have plenty of tools to reduce the odds of a cascading selloff. Last week’s instructions

to brokerages may slow the pace of forced liquidations, while a widely expected cut to banks’ reserve requirements is one of many monetary policy options to boost market sentiment. Authori-ties have already put caps on the amount of shares that can be pledged in an effort to limit risks.

In some ways, the share pledges currently worrying analysts can be more problem-atic during market downturns than the margin debt that roiled shares in 2015.

Most of China’s margin traders take on relatively small debts and are unlikely to face fi nancial ruin if their wagers sour. But share-holders who pledge their stakes for loans tend to do so on a much larger scale, often investing the funds back into their businesses or into other illiquid assets. That can make it diffi cult to top up collateral when share prices fall, especially for founders who have most of their wealth tied up in their companies. Gaining access to additional sources of fi nancing has grown increasingly tough this year amid the country’s clamp-down on shadow banks.

“China’s deleveraging drive will continue to make refi nanc-ing harder,” said Sean Hung, a senior analyst at Moody’s Inves-tors Service in Hong Kong. “If a company’s major shareholder has pledged a large amount of shares for funding, it usually

suggests the fi rm’s liquidity conditions are tight and the risks for stock-pledged lending defaults are also higher.”

At least 37 companies have fl agged risks associated with pledging of their shares over the past month, according to stock exchange fi lings.

Shenzhen Dvision Co., a video communications company, said Tuesday that pledged stock amounting to 40 percent of its shares outstanding had dropped to a level that may trigger a forced sale.

Jiangsu Dewei Advanced Mate-rials Co., which makes materials used in electric cables, said that a 33 percent stake in the company was at risk of liquidation.

Smaller companies are usually the most vulnerable to share pledge-related selloffs because their major stakeholders lack access to ready funding, accord-ing to Moody’s.

Changjiang & Jinggong Steel Building (Group) Co., which manufactures agricultural machinery, is among fi rms that SWS Research Ltd. says face such a risk. The company’s shares — 37 percent of which were put down as collateral for loans — have more than halved from their peak last year. Other at-risk companies include Yihua Lifestyle Technology Co., Suning Universal Co. and Sanxiang Impression Co. (SD-Agencies)

Share pledge-related selloffs hurt market