China’s capital city is joining other major cities such as Shenzhen in preparing a financial bailout package for local listed firms, Caixin reports, as looming margin calls force more shareholders to dump their stock.
Earlier this week, the Beijing branch of China’s top securities regulator urged a group of two dozen banking and brokerage creditors of Beijing Orient Landscape & Environment Co. Ltd not to dump any more of the company’s shares.
At the same time, the local government is setting up a Rmb 10 billion ($1.44 billion) fund to protect local public firms in danger of seeing their stocks tumble. According to Beijing’s Haidian district government, the fund will be co-managed by Dongxing Securities Co, a subsidiary of one of China’s state-run bad-asset managers.
Many Chinese lending institutions such as brokerages and banks accept company stocks as collateral for credit, but when the value of a company falls below a threshold, ownership of the security falls onto the lender.
Given the downwards trajectory of China’s mainland stock markets in recent months, the lenders are increasingly anxious to offload the stocks to avoid taking on the risk.