China's pledged share risks recede in first quarter: Shenzhen exchange

[SHANGHAI] The risks posed by the use of pledged shares as collateral in China eased in the first quarter, thanks to sharp stock market gains and the role of relief funds, the Shenzhen Stock Exchange said in a statement late on Friday.

Major shareholders of listed Chinese companies have borrowed heavily using stocks in recent years, and a roughly 25 per cent slump in stock prices in 2018 triggered a burst of margin calls, prompting Beijing to urge the injection of liquidity into struggling firms via relief funds provided by securities firms, insurers and others.

With China stocks up sharply in the first quarter of 2019, the value of stock collateral has increased while outstanding loans against shares dropped, the exchange said, leaving the financing structure of listed companies in better condition.

Outstanding loans against shares totaled 1.23 trillion yuan (US$183 billion) at the end of March, down 5.6 per cent from the end of 2018, as an increasing number of shareholders repaid their debts.

The market also benefited from 500 billion yuan worth of relief funding invested in 148 listed firms, boosting their share prices, the exchange said.

The exchange cautioned against lingering credit risks from highly leveraged shareholders of listed companies, saying it would strengthen oversight of such risks. (US$1 = 6.7032 yuan)

REUTERS