Bank Deal Breathes Life Into Shanghai, Shenzhen
Exchanges
The Chinese government's recapitalization of two of its
leading state-owned banks has breathed new life into the
country's ailing stock exchanges in Shanghai and Shenzhen,
especially boosting interest in finance companies which
are already listed.
Ove the past week, the Shanghai A-Share Index gained
66.864 points, or 4.2 per cent to finish at 1657.148.
The Shenzhen A-Share Index rose 12.27 points or 3.1 per
cent to close at 407.89. The Shanghai B-share Index rose
6.966 points or 6.56 per cent to close at 113.132. The
Shenzhen B-share Index went up 18.45 points or 6.86 per
cent to close at 287.14.
With the government's deal to recapitalize
two major banks , investors are betting that the government
will also intervene to save other healthier financial
institutions.
The move has also breathed new life into China's domestic
stock exchanges which have been largely bypassed by China's
robust economic performance in 2003. The main impediment
is that most of the listed companies are unprofitable
state-owned enterprises with large outstanding share holdings
in the hands of the Chinese government. Chinese and foreign
investors have hesitated to invest, fearing dilution if
the Chinese government dumps its shares.
Up until now, their performance has been stagnant, but
there is now renewed interest in them.
An early sign of renewed interest is the Bank of Communications
plan to list in Hong Kong and Shanghai. The bank, which
is one of China's oldest, was founded in 1908. The bank's
Hong Kong branch has assets of HK$60 billion, plans to
buy Hong Kong-based financial interests with a view to
listing separately from its mainland Chinese parent. It
aims to raise HK$2 billion from the listing.
The bank plans to list its domestic operation on the
Shanghai exchange sometime this year, before the listing
of Bank of China and China Construction Bank, and has
asked China's Ministry of Finance for an injection of
capital to deal with bad loans to state-owned enterprises,
as it has already done for the two major banks.
Bank of Communications claims that its level of non-performing
loans has fallen to less than 15 per cent, and should
fall to lower than 10 per cent, making it suitable for
A-share listing. The recapitalization plan has put major
pressure on Bank of Communications, and other healthier
banks, to race to list soon.
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