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China considers unwinding rules put in place after the last equity market crash; proposed change to help ease company fundraising

Xie Yu yu.xie@scmp.com

China's securities regulator is considering scrapping profitability requirements in mergers and acquisitions (M&A) for listed companies, as a way to facilitate secondary fundraising as the trade war weighs on Chinese growth and threatens to push the global economy into recession next year.

Under consideration is an amendment to remove profitability requirements in M&A deals involving listed companies, the China Securities Regulatory Commission (CSRC) said in a statement issued on its official website late Thursday.

The regulator also invited the public to comment on the proposals unveiled Thursday.

The proposed revisions also include easing fundraising restrictions for listed firms as a way to help boost cash flow, as well as support for back-door listings by hi-tech companies on the start-up board ChiNext.

"We believe, amid the continued loosening of policies, China's onshore M&A market is to revive after cooling for more than two years. This will help direct financing by companies," analysts at Essence Securities said in a research note on Friday morning.

The proposed changes are an institutional improvement that will lead to big benefits for the ChiNext market, Chinese brokerage Citic Securities said.

"The policy will be a strong sentiment boost to the ChiNext board in the short term," Citic analysts led by Qin Peijing wrote in a report Friday.

Bolstered by the easing signal, the ChiNext Index, tracking leading technology companies in Shenzhen, rose 1.7 per cent to close at 1,523.8 on Friday.

The CSRC tightened M&A and restructuring rules in 2016, as a way to curb stock speculation following the equity market crash in the summer of 2015. After the policy revision, listed companies needed to pass comprehensive scrutiny to get regulatory approval for restructuring. These included requirements on total assets, net assets, revenue and profit.

The authority also tightened approval for fundraising related to restructuring after 2016. As a result, the CSRC approved 267 secondary share placements in the year of 2018, sharply down from 813 in 2016 and 540 in 2017, according to financial data from Wind.

With additional reporting by Yuijing Liu

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