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 New Bridge Shan Weijian’s Comments on Bao Steel and my criticism |
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美国龟龟
头衔: 海归上士
加入时间: 2005/08/12
文章: 12
海归分: 1193
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作者：美国龟龟 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
It is so interesting to see Mr. Shan’s comments on Baosteel’s stock reform on WSJ today. I attached the original article below and my comments are following. Please read the article first then my comments.
The state-owned illiquid share issue has been hovering on Chinese stock market since it was born. The stock market has lost its economical meaning to exist. It has changed from financing tool of state-owned company to a gambling market to a loser’s market which whoever touched is a loser. In China, it is embarrassing to admit that you own shares in the market as this admittance has the same meaning as telling anyone I am losing money in the market. Why? No one makes money in this damn market even manipulators get killed. The market like that has better be closed.
It is no coincidence that US has the most powerful economy and the most advanced and sophisticated equity market in the world. A healthy stock market is one critical element of the market economy. For companies, it worked not only as one financing tool but also as a market to let star companies grow and prosper. That is why most of the best companies worldwide are public-listed ones. For long-term investors, it is a main channel to allocate their savings in exchange for reasonable returns. For entrepreneurs, the wealth effect of being a president of a public-listed drove them leverage their talents and work their ass off to make their company profitable and grow. For VCs, no matter you are angel or pre-IPO investors, your work is to provide a pipeline to consecutively bring good companies to IPO and they get one piece of pie by successfully doing that. For government, they always get more tax from a bigger economy. So no one loses here as long as the game rule is fair and the market is healthy. Enough blood has been shed and finally the regulators took the initiative to kick out the reform. I have to admit it is a complicated issue and every proposal has their own drawback, but the current Bao Steel’s proposal is much better than Shan’s suggestion which is “A better plan, he said, would be for nontradable shareholders to reduce their stake over a period of years by gradually selling into the public market.”
First of all, timing is everything. When the stock market dropped like a nosedive, every stakeholder (not stock-holder) agrees that the state-owned stock issue has to be solved as soon as feasible. I am not just talking about the financial loss of investors but the opportunity cost which we forsake by maintaining the status-quo. If Shan’s suggestion is taken, given the two thirds of nontradable share, it will take years to get unloaded during which time only suckers will buy them. Someone may argue their stocks will be sold at a discount which will attract liquidity. Unfortunately, as long as there is one slice of selling hovering around, there is no liquidity. It is like putting an elephant into a bathtub. It will scare everyone away. Intrinsic value is a myth which no one knows for sure. The market perception or market sentiment matters. Therefore, Shan’s opinion is just naïve and totally non-executable.
Second, government will always maintain the majority shareholding in the companies like Bao Steel. Hence, they are unwilling to give this controlling right to anyone else. Also, selling stocks with a discounted price will cause valuation puzzle and panic in the market as investors do not like uncertainty of unloading. In return, they either sell their shares or buy at a lower price. Anyway, uncertainty means more risk means more returns desired by investors.
I respect Mr. Shan as a private equity professional but his opinion on this issue is way out of line. I wonder whether his New bridge stake (nontradable share) at Shenzhen Development bank blinded his reason.
Any comments or criticism are welcome.
Fissures Appear In China Revamp Of Equity System
Baosteel Plan to Parcel Out
Government-Owned Shares
Draws Boardroom Dissent
By LAURA SANTINI
Staff Reporter of THE WALL STREET JOURNAL
August 11, 2005; Page A11
HONG KONG -- A rare boardroom dispute has broken out over the way a big Chinese company is dealing with the thorny issue of how to move massive piles of government-owned equity into the public share market.
Baoshan Iron & Steel Co. is among the first state-owned companies aiming to resolve the overhang of so-called nontradable shares held by government entities. The board of Baosteel, as the Shanghai company is known, in June approved a plan that would parcel out the nontradable shares to existing shareholders.
In a move that could foreshadow a more lively debate over how China overhauls its equity markets, an independent director at Baosteel who also is a prominent investor in China has made an unusual public objection to the company's proposed solution.
In a sharply worded letter to Baosteel's board, Weijian Shan, an executive in Hong Kong for U.S. private-equity group Newbridge Capital Ltd., warned that the plan would harm the company's long-term financial stability and ultimately hurt its shareholders.
A spokesman for Baosteel didn't respond to requests for comment.
Baosteel's efforts to restructure its capital are one piece of a massive effort that must be completed before China's sluggish stock markets can hope to reflect the economy's impressive growth. Nontradable shares account for two-thirds of China's market's capitalization, and investors fear that if there is a flood of such shares into the public markets, stock prices could tumble.
Chinese regulators and companies such as Baosteel that are restructuring through a government-supported plan aim to prevent such a slide. Rather than selling the shares, the companies plan to distribute them to existing shareholders, and offer the owners special incentives to keep holding their blocks.
Baosteel's conversion plan would distribute 2.2 nontradable shares for every 10 publicly traded shares, so an investor with 100 shares would receive 22 new ones. In addition, investors will receive one warrant for every 10 shares, allowing them to buy another share of stock at a fixed price.
Mr. Shan voted against the plan. In his letter to Baosteel's board, he argued that giving away shares interferes with the market mechanism of setting prices according to supply and demand. While propping up Baosteel's share price in the short term, the plan will encourage public investors to lock in artificial gains by selling those shares later on, he said.
A better plan, he said, would be for nontradable shareholders to reduce their stake over a period of years by gradually selling into the public market.
Private-equity firms, such as Newbridge, need stable equity markets in which to sell shares when exiting from large holdings. Newbridge owns a 17.89% stake in Shenzhen Development Bank.
Last month, Baosteel also announced a change to its dividend policy that is designed to discourage public shareholders from selling. From 2005 to 2007, the company will pay shareholders a minimum dividend of 32 fen (four U.S cents) a share.
Setting a floor on dividends, Mr. Shan contended, adds to the company's fixed-payment obligations and, basically, transforms the company's equity to debt. The sudden increase in its debt load will scare off lenders and curtail Baosteel's ability to raise new capital in future stock offerings, he said in a separate letter explaining why he opposed the new dividend policy.
What is more, he said, the entire restructuring plan hurts the current owners of nontradable shares -- Chinese citizens forming "the silent majority who are unable to negotiate with the company," Mr. Shan wrote.
Mr. Shan's letter was published this week in Caijing, a popular business magazine in China. The severe critique by the financier might damp enthusiasm for similar share-transfer plans floated by other Chinese companies, market observers say.
Public shareholders of Baosteel stock will vote on the company's plan tomorrow. Approval by two-thirds of them, which observers expect, is needed for the plan to go forward. "The plan is quite attractive for [public] investors," says David Huang, analyst at Shanghai hedge fund Dynasty Asset Management.
作者：美国龟龟 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 New Bridge Shan Weijian’s Comments on Bao Steel and my criticism -- 美国龟龟 - (8239 Byte) 2005-8-12 周五, 11:50 (1061 reads)
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