China’s top securities regulator resorted to unusually harsh language to denounce leveraged acquisitions of shares in listed companies, as officials move to rein in financial risks associated with a surge in dealmaking.
China Securities Regulatory Commission Chairman (CSRC) Liu Shiyu also questioned the legitimacy of the funding sources at acquirers that he didn’t identify, saying their behavior challenges the nation’s rules, as well as their own professional ethics. Such acquisitions show “retrogress and decay in humanity and commercial morals, and is by no means financial innovation,” the 55-year-old Liu said.
“By using improperly obtained money to conduct leveraged acquisitions, you’ve gone from strangers at the gate, to barbarians and eventually robbers of the industry,” he said at a meeting of the Asset Management Association of China in Beijing on Saturday, a transcript of which was posted on the regulator’s website. “That’s not allowed.”
The comments came after China Evergrande Group, the country’s largest property developer, last month stepped up purchases of shares in rival China Vanke Co. in the weeks after a warning from the Shenzhen stock exchange that it is closely monitoring Evergrande’s investments, some through its insurance unit, in listed companies. The bourse said it strengthened supervision after finding “abnormal trading behaviors” that affected share prices of Vanke and others.
“This manifests top regulators’ stance on insurers’ buying spree, and it will be helpful for the market to develop along a healthy path,” Zhou Min, a Hong Kong-based analyst at Sanford C. Bernstein & Co., told Bloomberg, citing controversies surrounding insurance companies’ trading in the stock market.
While much of the money used for stock purchases by most acquisitive insurers was raised from high-yield, short-term products and poses large liquidity risks, such funds can’t all be categorically called “improperly obtained,” Zhou said. “But we can’t exclude the possibility that the CSRC has collected some evidence of certain wrongdoings at some acquirers.” MDT/Bloomberg
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