Exclusive: China considers stock repurchase business

SHANGHAI (Reuters) - China is considering a plan to let companies borrow short-term funds from brokerages by temporarily selling their stock holdings, sources told Reuters, a move that would potentially provide support for the stock market as well as an alternative funding channel for businesses.

If implemented, the so-called stock repurchase plan, proposed by the Shanghai Stock Exchange, could also help broaden revenue streams for securities companies.

"Such a business sounds very attractive to those cash-strapped companies out there who are seeking fresh funding but unwilling to give up shareholdings," said Wang Dali, analyst at Southwest Securities.

"And for many listed brokerages with ample cash reserves, it's also a lucrative business, as long as they can manage the risks properly."

Under the proposal, which has been submitted to the China Securities Regulatory Commission (CSRC) for approval, qualified investors can sell their stock holdings to brokerages, agreeing to buy them back at a pre-determined price after a certain period of time, the sources said.

That would effectively allow companies to raise funds using their stock holdings as collateral when cash is needed for operating expenses or other short-term needs, rather than forcing them to sell shares.

The sources declined to be identified because they are not authorized to speak to the media.

Wang doubted that Beijing would give a go-ahead to such a business any time soon or on a big scale, as it runs counter to monetary tightening measures the government still keeps in place to fight inflation.

Spokesmen at the Shanghai Stock Exchange and the CSRC declined to comment.

DISMAL STOCK MARKET

In an apparent attempt to bolster share prices and stem a prolonged fall in the market, China's sovereign wealth fund last week increased its holdings in the country's biggest banks for the first time since the 2008/09 financial crisis.

Beijing has also announced a series of measures to support the country's small- and medium-sized enterprises, which have been struggling to obtain funding from state lenders.

The pilot program, which is similar to bond repurchase transactions in the money market, would create a financing channel for shareholders in publicly-listed companies, who would typically be under pressure to reduce their stock holdings during liquidity shortages.

The minimum transaction amount required would be set at 100,000 shares or 1 million yuan ($157,000), with the maximum buyback period capped at 12 months, according to the plan.

Haitong Securities (600837.SS), Citic Securities (600030.SS) and Galaxy Securities are likely to be picked to join the program once the plan gets the nod from the securities regulator, the sources said. ($1 = 6.371 Chinese Yuan)

(Additional reporting by David Lin and Zhao Hongmei in BEIJING; Editing by Jacqueline Wong)