Preference shares issuance expected in Q3: report

Issuance of preference shares in China is expected to kick off in the third quarter of this year, the China Securities Journal reported on Thursday.

In March, China's Securities Regulatory Commission (CSRC) announced new rules of the pilot program allowing eligible companies to issue preference shares. The shares are expected to add financing channels for Chinese companies to boost capital levels.

According to the report, as of May 28, six companies including China State Construction and Agricultural Bank of China had rolled out such plans.

Market insiders predicted that with issuance plans of companies coming out, issuance is expected to start in the third quarter, probably in July or August, the report said.

"The reason why the exact time for issuance of preference shares is not fixed is that currently there are a few key details yet to be settled," the report said, citing sources familiar with the matter.

"For instance, the list of companies that will issue preference shares has not been decided. Some institutions have taken a wait-and-see approach until after they see the issuance plans of some companies," the source said. "The list may need expanding," the source said.

Preference shares, along with common shares, are two primary types of stocks that companies offer to investors. Preference shareholders have priority rights over ordinary shareholders in distribution of profits and residual assets.

Unlike common shares, preference shares function more like a bond. They are rated by major credit-rating companies and their prices are affected by changes in interest rates.

Huatai Securities said in a report that preference shares are a new type of investment instrument with enormous potential demand. Preference shares will significantly strengthen banks' capability in capital replenishment, the institution said, adding that in the next five years, banks will issue up to 1 trillion yuan (159.8 billion U.S. dollars) worth of preference shares.

Analysts said state-owned companies will consider issuance of preference shares as a way to solve debt issues, and more blue chips may launch the issuance.