Under the new regulations on reduction of holdings, although the block trading has cooled down significantly, it has not fallen into the “freezing point” as the market expected. In response to the demand of major shareholders and specific shareholders to reduce their holdings, “new tricks” are being derived from block transactions. It is undeniable that the original arbitrage model of “short-term, flat-and-fast” earning price difference has been invalidated. For the previous large-scale undertaking of funds, we must find a new way out.
Preliminary effect of the new regulations on reduction of holdings
On May 27, the China Securities Regulatory Commission issued the “Several Regulations on Share Reduction by Shareholders, Directors, Supervisors and Senior Management of Listed Companies”, and the Shanghai and Shenzhen Stock Exchanges also issued rules to improve the reduction system. Among them, for the “bridge reduction” through block transactions, the new regulations clarified the amount of reduction and the period of shareholding required by the transferor and transferee: if the major shareholder reduces the shareholding or the specific shareholder reduces the shareholding, and adopts the method of block transaction, In any consecutive 90 days, the total number of shares to be reduced shall not exceed 2% of the total number of shares of the company. The transferee shall not transfer the transferred shares within 6 months after the transfer.
During the Dragon Boat Festival holiday after the news was released, market participants expected that block trading was about to fall into freezing point. Most of the previous large transactions have the color of “bridge reduction”. According to the data, the average holding period of the transferee in the block trade is 20 trading days, and those sold through centralized bidding within 7 trading days account for about 68% of the transferred shares. And if they are put on a “hoop curse” with a 6-month lock-up period, the block trader will inevitably have concerns, especially in the current weak market atmosphere, which will further affect the activity and volume of block trades.
However, judging from the data after the implementation of the new regulations, the data on block transactions has dropped significantly, and the number of major shareholders and specific shareholders who have reduced their holdings through block transactions has decreased significantly, but they have not completely disappeared as expected. Some shareholders are still looking for countermeasures in the policy cracks. A typical case is the oriental garden. Oriental Garden announced that on May 31, the company’s shareholder Zhongtai Chuangzhan Asset Management Co., Ltd. (Zhongtai Asset Management) reduced its holding of 39.43 million unrestricted tradable shares of the company through the Shenzhen Stock Exchange’s block trading system. shares, accounting for 1.47% of the company’s total share capital. The reduced shares are unrestricted tradable shares transferred by Zhongtai Asset Management through an agreement on March 10, 2016. After this reduction, Zhongtai Asset Management held 130 million shares of the company, accounting for 4.99% of the company’s total share capital, and was no longer a shareholder holding more than 5% of the company’s shares.
Compared with the new regulations on reduction of holdings, the reduction plan of Oriental Garden can be described as “precise” avoiding the constraints of the new regulations. Specifically, Zhongtai Asset Management reduced its holdings by 1.47%, which is in line with the requirement of “reduction of not more than 2% for 90 consecutive natural days” for block transactions under the new regulations; After the completion of the reduction of holdings, Zhongtai Asset Management held 4.99% of the shares, and got rid of the status of the major shareholder holding more than 5% of the shares with a difference of 0.01%, which means that it will be in the future in the future. Enjoy “freedom” in terms of letter and disclosure.
Of course, despite the above-mentioned cases, the overall data shows that the new regulations for reducing holdings have initially shown a restraining effect on disorderly reducing holdings. According to statistics from the Shanghai Stock Exchange, as of May 26, before the implementation of the new regulations, a total of 278 shareholders of listed companies in the Shanghai Stock Exchange had reduced their holdings this year, involving 2,422 accounts, with a cumulative reduction of 10.2 billion shares, with a total amount of 90 billion yuan. Among them, 55.1 billion yuan was reduced through the bidding system, with a daily average of 576 million yuan; block transactions were reduced by 34.9 billion yuan, with a daily average of 365 million yuan. Last week, in the three trading days after the implementation of the new regulations on shareholding reduction, a total of 35 shareholders of listed companies have reduced their holdings, involving 86 accounts, and a total of 47.16 million shares have been reduced, with a total amount of 570 million yuan and a daily average of 190 million yuan. , all of which were reduced through the bidding system, not through block transactions
According to statistics from the Shenzhen Stock Exchange, in the three trading days after the implementation of the new regulations, a total of 124 major shareholders, specific shareholders and directors, supervisors and senior executives of listed companies in Shenzhen have reduced their holdings, involving 241 accounts, with a total reduction of 310 million shares. The total reduction amount was 4.083 billion yuan, and the average daily reduction amount was 1.361 billion yuan, a decrease of 54% compared with the average daily reduction of 2.977 billion yuan in the 10 trading days before the release of the new regulations. Among them, 2.191 billion yuan was reduced through block transactions, accounting for 54%, and the average daily reduction was 730 million yuan, a decrease of 53% compared with the average daily reduction of 1.551 billion yuan in the 10 trading days before the release of the new regulations. 1.892 billion yuan was reduced through auction transactions, accounting for 46%, with an average daily reduction of 631 million yuan, a decrease of 56% compared with the average daily reduction of 1.426 billion yuan in the 10 trading days before the release of the new regulations.
A “sophisticated plan” for reducing holdings emerges
For the funds in the market that used to undertake large-scale transactions and reduce their holdings as their main profit model, the introduction of the new regulations means that the previous simple and crude model of arbitrage business is no longer applicable. A market person engaged in large-scale transactions said that in the past, the “playing method” was that the major shareholders of listed companies gave discounts. According to the overall market conditions and the liquidity of the specific stock secondary market, the discount would fluctuate within the range of 92% to 98%. , the receiving party can complete the operation in the secondary market every two or three days, and one more week. While each stock may make a difference of one to two percentage points, the time is short. Since it is a fund rolling operation, a relatively considerable annualized rate of return can be obtained.
However, under the new regulations on the reduction of holdings, the transferee of the block transaction cannot transfer within 6 months after the transfer, and the opportunity for it to be transferred at a discount and to arbitrage through the secondary market in the short term is blocked. This means that the previous “short-term speculation” model has to be changed to “long-term investment”, which is self-evident for some funds with single business and good at short-term transactions. “Simply put, when making investments for more than 6 months, obviously you can’t just focus on the discount rate, and you must have a certain judgment on the company’s fundamentals. This is obviously not the ability of the existing team. Moreover, for the vast majority of previous undertakings For institutions that reduce their holdings in large quantities, the previous rate of return is also largely derived from the rapid rolling operation of funds, which is better than the utilization rate of funds, and under the new regulations, this logic obviously no longer exists.” The above People in the block trading industry said that, as far as they know, some private equity institutions with a single business have entered a “vacation state”, and they are still waiting to see and explore how to carry out follow-up business.
Regarding the case of Dongfang Garden’s shareholding reduction, some industry insiders have analyzed that from the perspective of the major shareholder of the listed company, this is undoubtedly an exquisitely designed plan; from the perspective of the bulk buyer, the discount rate of this transaction is about 3.12%, and there is no significant discount. let. Then there are two possible situations. One is that the receiver is more optimistic about the release of the company’s future performance and intends to operate in the long run. The second is that the bidder has reached a certain “tacit agreement” with the listed company and the reducing shareholders, such as certain commitments or compensation terms. If the stock price falls after 6 months, the bidder will not be deeply involved. These two ideas can be regarded as “new ways of playing” under the new regulations, but if it is the latter “drawer agreement”, there is suspicion of insider trading.
After the release of the new regulations on reduction of holdings, the emergence of the above-mentioned cases does not have much to learn from the reduction of holdings by major shareholders. “After the new regulations, the so-called subtle solutions are actually still within the regulatory framework of the new regulations. And these so-called subtle designs will attract the attention of the regulatory authorities. If they are legal and compliant, then these subtle designs are mostly possible. Whether it is necessary or not; if there are indeed violations, then the exquisite design may only be ‘shooting yourself in the foot’ in the end.” A listed company board secretary said.
The new model focuses on value investing
Under the new regulations on reduction of holdings, the pace of reduction of holdings by major shareholders of listed companies was forced to slow down, but judging from some public market signs, the “impulse” of some shareholders to reduce their holdings has not diminished.
According to the analysis of industry insiders, considering the position of the company’s major shareholders and specific shareholders, reducing holdings through block transactions is still a “better solution” under the new regulations: if a centralized bidding transaction method is adopted, the total number of shares held within any consecutive 90 days will be reduced. It cannot exceed 1% of the company’s total shares, which means a 4% reduction over a year. In the case of block transactions, the total number of shares held by the company shall not exceed 2% of the company’s total shares within any 90 consecutive days, and 8% of the company’s shares can be reduced through block transactions in that year.
Some market participants have given detailed reduction plans for different shareholding ratios. For example, if the shareholding exceeds 1% but not more than 2%, it can be sold in two centralized auctions within two 90 days, and the exit time is faster. 91 Days; more than 2% but not more than 4%, 2% of which can be transferred to the receiver through bulk transactions, and the rest is sold through centralized bidding, and the exit time is 181 days faster. At the same time, more than 4% but not more than 5%, more than 5% but not more than 7%, and more than 7% can find a corresponding reduction path.
It is worth mentioning that, in addition to the major shareholders of listed companies, the withdrawal of fixed increase shareholders has also brought new demand. In the context of the increase in fixed increase and break issuance, investors have a stronger demand for early profit-taking, so reducing holdings through block transactions has become one of the options. In addition, due to the embarrassment of a large number of private placement products being forced to extend the exit cycle under the new regulations, especially some high-leverage products are eager to reduce their holdings through large-scale transactions, so as to return the priority funds as soon as possible, thereby reducing leverage and making the leverage ratio in line with regulatory requirements. Require.
“From the perspective of market demand, there is still a large market for large-scale transactions.” An industry insider said that after the implementation of the new regulations on reducing holdings, how to find counterparties, especially large-scale transactions (less than 5% of shareholders), The counterparty of the agreement transfer (more than 5% of shareholders) has become the key to the success of the reduction.
In response to market demand, shortly after the implementation of the new regulations, many large-scale trading institutions began to claim to provide “innovative” holding reduction models under the regulatory framework. However, according to a reporter from China Securities Journal, these so-called “innovations” did not find a “loophole” in the policy, but “made a fuss” on the funds of the counterparty, and the extended period of fund withdrawal also increased the cost of funds. Shareholders who reduce their holdings are “compensated” by other means. At present, there are already transaction receiving funds that require shareholders of listed companies to return some funds to the receiving party for use within a certain period after the transaction. If there are counterparty funds, shareholders of listed companies are required to make relevant compensation commitments for the final reduction of their holdings, etc. However, such “innovation” is not a “detour” to the new regulations on reduction of holdings, but a special arrangement in terms of transaction funds.
Of course, the new regulations on reduction of holdings require the bidder to hold the shares for more than 6 months, which also makes the bidder inevitably need to put forward higher requirements on the discount rate, and even reach some kind of “tacit agreement” with the reducer in private to ensure that 6 Exits after a month will not be a loss. However, some people in private equity institutions said that for some large-scale transaction undertaking institutions, rapid transformation is not so easy. Because the previous model was relatively simple and basically standardized operations, and the future “playing methods” will become more and more complex, and a new operating model must be re-established with the idea of value investment, which poses challenges to both the team and the funds.
