China Issues New Guidelines on the Issuance of Preferred Stocks
Last Saturday China has unveiled new guidelines in the issuance of preferred stocks that offers listed firms a new channel for funding a capital base especially banks that are listed. Under the new guidelines the Cabinet and State Council said that private issuance of preferred stocks will also be available to listed firms especially those incorporated ones on the mainland but is listed overseas and unlisted public firms.
The trial is launched and aimed to offer issuers a direct and flexible financing tool that will optimize the financial structure of these forms and to push with mergers and acquisitions. The guidelines will also help in the diversification of investment channels for investors that are planning to broaden the variety of security. Compared to common stocks a preferred stock has the priority over common stocks through the distribution of corporate profits and when liquidated. Although shareholders of such stocks has limited rights on making corporate decision making based in the definition that is provided by the new guidelines.
The number of preferred stock that can be issued by a firm will not exceed 50 percent of the firm’s common stocks, along with the amount of funds that is raised by the offering preferred stocks that won’t be allowed to go over 50 percent of a firm’s net assets just before the offering. These preferred stocks will be transferred or traded on the stock exchange using the National Equities Exchange and Quotations, the national over the counter market will be used for unlisted firms and other security trading markets that is authorized by the State Council.