China’s companies spurn directive to pay 30% dividend; Just 60 per cent of China’s biggest listed-companies met the dividend guidelines, a blow for attempts to build credibility in China’s equity markets
May 16, 2013 Leave a comment
May 16, 2013 5:48 am
China’s companies spurn directive to pay 30% dividend
By Josh Noble in Hong Kong
Just 60 per cent of China’s biggest listed-companies met the dividend guidelines laid out by the Shanghai stock exchange earlier this year, a blow for attempts to build credibility in China’s equity markets.
Of the members of the FTSE A50 index, only 30 companies paid a dividend of over 30 per cent during the most recent earnings season, according to data compiled by Markit.
In January, the Shanghai bourse told listed companies to return at least 30 per cent of profits to shareholders“because of a definite gap between cash dividend ratios for Shanghai-listed companies and those in mature markets”.Those that met the requirements would be given preferential treatment when seeking approval for financing or takeover activity, while those that fell short would need to provide a full explanation in their annual reports.
The exchange’s edict was part of a broader effort by Chinese authorities to boost credibility and encourage more long-term investment in the country’s struggling equity markets.
Chinese stocks have been in the dumps for more than three years. Last November the Shanghai index fell below 2,000 points for the first time since the depths of the financial crisis. Although it then went on a brief, stellar run – gaining more than 30 per cent in just a few weeks – the rally ran aground in February. Year to date, the market is in negative territory.
The lack of belief in equities among local investors also has had broad economic ramifications. Many instead have turned to the property market, fuelling a rapid rise in house prices, or to high-yielding wealth management products (WMPs), offered through the shadow banking system.
According to the data from Markit, the companies that failed to meet the exchange’s dividend guidelines were mainly medium-sized lenders – the most exposed to WMPs – and construction and materials groups.
However, the new rules did have some success. The 30 companies meeting the threshold this year compares to just 22 last year. China Merchants Bank and Jiangsu Yanghe Brewery were among those to raise their payouts to meet the new guidelines.
Some analysts have questioned the logic of the guidelines altogether, noting that certain sectors were more in need of cash than others.
“Compared to state-owned banks, these smaller banks need to reserve a larger portion of their earnings as supplementary capital in order to support future profitability and sustainable growth”, Markit analysts wrote in their report.
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