THE China Securities Regulatory Commission (CSRC) is ready to launch a long-awaited pilot program allowing listed companies to issue preferred shares, sources with direct knowledge of the policy said yesterday, and could officially announce the new policy as soon as this weekend.

    The first shares to be trialed will be shares in Chinese banks — as analysts had widely predicted — and the sources said that major State-owned banks had already prepared share tenders.

    CSRC officials said earlier this week that the time is ripe for China to start trialing preferred shares and that all listed and non-listed companies could ultimately apply for issuance. The CSRC did not respond to requests for comment.

    Preferred shares pay fixed dividends and enjoy seniority over common stock holders in the event of bankruptcy. But in other respects, they have limited impact on common shareholders. They typically do not trade on the open market, carry no voting rights and do not dilute net profits attributable to shareholders.

    Stock market investors have thus been eagerly anticipating their introduction, hoping they will allow listed companies to raise funds from stock markets without diluting valuations.

    In addition, many investors have long complained that too many listed firms are required to sacrifice profitability in favor of wider policy priorities. They view the introduction of preferred shares as a way for the government to convert its massive holdings of traded shares into inert preferred shares, diluting government influence while increasing the value of other investors’ holdings.

    The new policy could juice a recovery in China’s stock indices, which have been routed recently by a combination of bad economic news, tight liquidity and the resumption of initial public offerings (IPOs) — the latter of which has had a dilutive side-effect on valuations. (SD-Agencies)