SHANGHAI (Reuters) - Guanghui Energy Co has become the first Chinese listed firm to announce a plan to issue preferred shares, in a surprise to market watchers who expected banks would take the lead in testing out the new form of capital recently approved by regulators.
The Xinjiang-based private gas and coal mining firm aims to raise 5 billion yuan (S$1.6 billion) in a private placement, pending regulatory approval, the company said in an exchange filing.
The issue would mark China's first-ever sale of preferred shares, a form of hybrid capital instrument that combines features of debt and equity.
As part of a slew of reforms planned for China's capital markets, the State Council, the country's cabinet, gave the green light for preferred share issuance for the first time last November.
The China Securities Regulatory Commission (CSRC) followed through by issuing rules for the pilot programme in March, paving the way for the long-awaited scheme to be launched.
Guanghui's issuance will come as a surprise to the market, where investors have widely expected that Chinese banks, which urgently need fresh financing, will take the lead in floating preferred shares.
The securities regulator published detailed rules on commercial bank issuance of preferred shares last week, paving the way for lenders to begin fundraising designed to enable them to withstand an expected rise in bad loans and meet the new global rules on bank capital known as Basel III.
Investors are expected to welcome listed companies' issuance of preferred shares, because such issues minimise dilution of existing shareholders compared with common equity issuance.
But analysts have warned that a flood of new preferred share issues could siphon demand from existing shares, pressuring stock prices.
Preferred shares typically do not trade on the open market, carry no voting rights, and do not dilute net profits attributable to shareholders. They enjoy seniority over common shares in the event of bankruptcy.
Guanghui Energy plans to issue 50 million preferred shares at a face value of 100 yuan per share, with no provisions allowing the shares to be converted to common equity. "The issuance of preferred shares will optimise our company's financial structure, enhance its risk-resistance ability, establish multi-financing mechanisms and help meet the fund demand," Guanghui said in a filing to the Shanghai Stock Exchange late on Thursday.
The company still needs approval from its shareholders as well as the CSRC.
The company aims to issue the shares in tranches, with the first to be floated six months after the CSRC's approval and the rest within 24 months, it said.