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State fund becomes market player

Tuesday, March 21, 2006

ENOCH YIU and BEI HU

The National Council for Social Security Fund (NSSF) has opened an account in the local stock market's clearing house, indicating that it has successfully lobbied mainland authorities to allow it to receive shares, rather than cash, from the initial public offerings of state-owned enterprises.

Market sources say that such a major policy shift will mean the giant pension fund is in a position to boost its funding through H-share initial offerings.

Under rules introduced in 2001, all state shareholders selling stakes were required to give 10 per cent of the proceeds of new listings to the NSSF, the fund of last resort designed to plug holes in provincial social security systems.

Sources say Bank of China, due to list in Hong Kong in May, could be among the first big initial offerings to pay the NSSF in shares.

The plan still faces objections from China SAFE Investments, the bank's dominant state shareholder, which argues the NSSF had already agreed to a pre-offering investment of 10 billion yuan.

The first company to be affected by the rule will be Hunan Nonferrous Metals Corp, which launches its initial offering today and give a 3.3 per cent stake to NSSF.

Tony Espina, chairman of the Hong Kong Stockbrokers Association, said the new policy would silence mainland critics who had long complained that the listing of state-owned enterprises in Hong Kong would permit them to fall into the hands of overseas investors.

"The NSSF will be able to hold on to these stocks in the long term, receiving dividend income and the capital gains from these IPOs," Mr Espina said. "It means that H-share listings will benefit the national pension funds and the future pensioners of China."

Previously, the NSSF was paid in cash from Hong Kong offerings, allowing it to invest the proceeds only in bank deposits or bonds with low returns of just 3 per cent a year.

posted by Henry @ 6:32 PM