FINANCE

Share Cancellation Key to Ensuring PBOC’s Relending Tool Stabilizes Stock Market, Insiders Say

Published: Dec. 11, 2024 7:53 p.m. GMT+8

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The PBOC’s relending tool makes an initial 300 billion yuan of loans available to mainland-listed companies for share buybacks and for their major shareholders to increase their stock holdings. Photo: AI generated

As the People’s Bank of China’s (PBOC) relending tool for share repurchases has come into operation, industry insiders have stressed that listed companies canceling the shares they buy back is key to the authorities’ goal of stabilizing the stock market.

As part of the stimulus package revealed in late September, the tool makes an initial 300 billion yuan ($41.8 billion) of loans available to Chinese mainland-listed companies for share buybacks as well as to their major shareholders to increase their stock holdings.

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The PBOC's relending tool for share repurchases offers 300 billion yuan in loans to boost the Chinese stock market, with an interest rate differential for banks.
Companies are encouraged to cancel repurchased shares, which benefits all shareholders by potentially increasing returns, as opposed to using them for equity incentives.
Over 40 companies plan to repurchase shares using the tool, with about one-third committing to cancel these shares as part of market value management efforts.

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Who’s Who

Guolian Securities Co. Ltd.: Guolian Securities Co. Ltd. is referenced in the article for its report dated October 22, analyzing the performance of mainland-listed companies from 2011 to November 2023. The report found that companies which canceled repurchased shares often outperformed those utilizing shares for equity incentives or employee stock ownership plans, particularly in the three months following the announcements.

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What Happened When

February 2024：: China's top state-owned assets watchdog announced plans to link the performance assessments of listed SOEs to their market value management effectiveness.

Late September 2024：: The People's Bank of China revealed a stimulus package including a relending tool for share repurchases.

September 24, 2024：: The China Securities Regulatory Commission issued a draft guideline for listed companies to implement market value management.

October 18, 2024：: The People's Bank of China issued a notice about loan terms for the relending tool, allowing banks to make loans to qualified borrowers.