In a rare move from China’s regulators three of the country’s top financial authorities have issued simultaneous statements seeking to assuage concerns about risk in relation to the use of stocks as collateral for loans by key shareholders.
The issue of controlling shareholders using stock as collateral for loans has recently risen to the fore on China’s capital markets, triggering concerns over cascading price declines should creditors make margin calls.
Shenzhen-lised Boomsense made a filing with the the exchange in early June indicating that 17.8% of the company’s stock had been pledged by the controlling shareholder as loan collateral.
The China Securities Regulatory Commission, the Shanghai Stock Exchange and the Shenzhen Stock Exchange have since sought to assuage market trepidations, issuing simultaneous statements at on June 26, indicating that share collateral risk is “under control overall.”
The Shanghai Stock Exchange said that “the stock collateral risk of companies listed on the Shanghai Stock Exchange is under control overall,” citing data indicating that the total value of stock collateral is equal to 3% of the total capitalisation of the exchange.
The Shenzhen Stock Exchange used almost exactly the same phrasing to describe its own circumstances, while also stating that it would “fully use regtech methods to establish a stock collateral risk monitoring platform, promptly grasp the collateralization information of shareholders, and encourage relevant shareholders to promptly perform information disclosures and risk warnings.”
The China Securities Regulatory Commission (CSRC) said at a press conference that “the overall risk controls of securities companies with regard to stock collateralised financing operations are effective,” and that “sector operations are in a sound condition, finance are stable, and liquidity is ample.”