China Increases Refinancing Threshold

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Oct. 10 – China’s securities regulator said publicly-traded companies will now be required to pay dividends in cash instead of stock, three years before filing their refinancing applications.

The regulation should improve long-term investment and aid market volatility. The China Securities Regulatory Commission (CSRC) said: “The listed firms, if applying for refinancing, must pay dividends in cash totaling no less than 30 percent of its distributed profits over the past three years.”

To improve transparency, it will be mandatory for listed firms to reveal the details of their cash dividend policies and previous cash dividend data to investors in their annual reports.

The new rule stipulates that if a listed company fails to pay a cash dividend, it must explain why and where the money went.

The CSCR said cash dividends could offer stable investment returns and push large institutional investors to lessen speculation on the secondary market.

Earlier this year, some huge refinancing plans led to a market plunge over concerns on stake dilution and liquidity stress.

The CSRC has also implemented share buy-back regulations that will allow cash dividend payments for controlling shareholders who bought stocks on the secondary market.

Share buy-back through bidding at stock exchanges no longer need regulatory approval. The CSRC said it would continue to revise the rules on stock buy-back and also give consideration to repurchase through agreement or tender offer.