Caixin Weekly | Who Benefits from the 300 Billion Buyback Loan and How Much Does It Stimulate the Market? (AI Translation)

财新周刊｜3000亿“回购贷”花落谁家 激活市场作用几何

[para. 1] On September 24, the People's Bank of China introduced a special relending program for stock repurchases and shareholding increases, marking a significant policy change aimed at supporting listed companies. This initiative allows these companies to receive loans for stock buybacks and shareholder increases, with a significant relending quota of 300 billion yuan set at an attractive interest rate of 1.75% per annum. This move is designed to provide financial leeway to private enterprises and promote market stability by supporting stock prices. A listed company was among the first to benefit from this policy by securing a 200 million yuan loan at a 2.25% interest rate, resulting in a noticeable surge in its stock price.

[para. 2] Following the announcement of the lending initiative, 21 financial institutions were tasked with extending these loans, with 23 companies initially receiving the repurpose and increased holding loans exceeding 11.8 billion yuan in total value. The policy encourages A-share companies to engage in more buybacks, projecting a positive message to the market through efforts such as cutting shares' outstanding numbers, improving earnings per share, and increasing shareholder value. This aligns with the ongoing efforts in China to drive market value management within central and state-owned enterprises.

[para. 3] Commercial banks have seen intense competition for these lending opportunities, adopting aggressive strategies like offering zero-interest spreads to attract prominent listed companies. Notably, some banks initially offered loans as low as 1.75% annually for up to three years, though this interest rate was later regulated to not fall below 1.9%, with the maximum term capped at one year. Simultaneously, brokerages also enter the fray, offering services to facilitate these transactions, despite later changes leading to companies needing clarified guidance on using their funds versus the specialized loan provisions.

[para. 4] The quick adaptation of said policies suggests that not all companies can avail themselves of the loans. Enterprises which announced repurchase plans before the policy date will not benefit from these schemes. This adds an extra layer to the challenges faced by companies looking to optimize their funding strategies for market capitalization management. Additionally, many A-share listed companies in China have not fully integrated buyback mechanisms, lingering behind North American and Japanese markets, where buybacks have often acted as strategic tools for market regulation and shareholder value enhancement.

[para. 5] In historical context, sophisticated markets like Japan mobilized significant corporate governance reforms that allowed stock repurchases and dividend increases, vastly increasing buyback volumes compared to past data. Japan’s experience emphasized that enhancing corporate profitability, long-term growth strategies, and shareholders' returns are effective ways to build real market value, not relying solely on stock buybacks.

[para. 6] Banks involved in extending specific loans for stock repurchases indicate that the majority of recipients in the first rollout were central and state-owned enterprises. These entities often fulfill strategic and economic significance, highlighting the government's role in supporting industry leaders. Private enterprises remain cautious due to inherent risks despite accessing such loans. The banking sector has several lending parameters for determining participation, such as the company's financial stability, reputation, and strategic alignment with national interests.

[para. 7] Regulatory bodies such as the China Securities Regulatory Commission issued guidelines delineating circumstances under which A-share repurchases can occur, factoring elements like managing market value, executing equity incentives, and handling convertible bonds. These regulations aim to encourage companies to adopt strategies ultimately beneficial to all shareholders, with regular stock buybacks aimed to be systematically supported in future policy adjustments.

[para. 8] The broader impact of the new policy has yet to be entirely felt, especially in establishing a regularized repurchase mechanism in China's A-share market. While short-term boosts have been documented, achieving long-lasting effects requires a refined policy framework aiming at enhancing capital efficiency instead of simple short-term market stimulation. The discourse remains on evolving these policies to shape the capital market landscape sustainably aligned with global best practices for stock buybacks and corporate governance.