At least 10 Chinese firms have said they could delay or change plans to raise funds via private share sales after regulators closed a loophole in recently loosened rules designed to help companies battling the economic impact of the coronavirus, reported Reuters.
The China Securities Regulatory Commission (CSRC) eased conditions for private placements last month, allowing bigger sales at deeper discounts and tripling the maximum number of participating investors.
Only investors classified as “strategic” can take full advantage of the relaxed rules. However, without an accompanying definition, a number of firms designated key executives and unrelated fund managers as strategic investors.
This led to fear among lawyers and analysts of insiders buying cheap shares to sell later at a higher price without contributing to a company’s value. Frank Qu, senior partner at law firm Dentons, welcomed the clarification, saying private equity funds, mutual funds, trust plans and insurance products are unlikely strategic investors. “They should belong to the category of financial investors.”
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