Guanghui Energy Co. (600256) jumped the most in two months in Shanghai after the coal and gas producer announced a 5 billion yuan ($800 million) preferred-stock sale in what would be China’s first use of this financing option.
The shares of the Xinjiang-based company rose 4.6 percent to 7.99 yuan by the close, the biggest gain since Feb. 12. The stock rallied as much as 9.8 percent in Shanghai, where the benchmark stock index slid 1 percent.
Guanghui Energy is the first company to sell preferred shares after the government gave approval last month for a trial program that will enable some of the nation’s biggest-listed companies to raise funds without adding to their debt. Preferred shares may also help lenders shore up capital as a slowing economy squeezes profits and slumping equities deter investors.
“This expands investment channels for capital and helps companies to reduce debt ratios by boosting working capital without affecting their share prices,” said Li Bin, a Shanghai-based strategist with Capital Securities Corp.
Preferred shareholders have a higher claim on a company’s assets than common stockholders in the event of liquidation. While they are usually accorded fewer voting rights, owners of preferred stock are typically entitled to a fixed dividend before funds are paid to common shareholders.
The China Securities Regulatory Commission said March 21 that preferred stock, which shares features of both debt and equity, can be sold by companies on the Shanghai Stock Exchange 50 A-Share Index. Publicly traded companies can also issue the stock to pay for acquisitions and buy back shares, the CSRC said. Preferred shares issued by companies can’t be converted into common shares, except for those issued by banks, it said.
China’s biggest lenders, including Industrial & Commercial Bank of China Ltd. (601398) and Agricultural Bank of China Ltd. (601288), have said they’re prepared to sell preferred shares as they seek to address tougher capital requirements. Some steelmakers will also be allowed to issue preferred shares as overcapacity squeezes industry-wide earnings, the Ministry of Industry and Information Technology said March 29.
Guanghui Energy plans to use the proceeds to fund a railway project that links the western provinces of Xinjiang and Gansu and boost working capital, according to a statement to the Shanghai stock exchange yesterday. As many as 200 investors will buy the 50 million share offering in a private sale.