China firms halt dividends, sell equity to ride out virus pandemic


  • China
  • Monday, 27 Apr 2020

HONG KONG/SHANGHAI: In this era of pandemic uncertainty, Chinese and Hong Kong-listed firms have come to one consensus on how to best survive it: sit on their wallets and preserve cash.

They are retaining profits instead of distributing them to shareholders, with the most Hong Kong dividend payers in at least 35 years opting not to do so in the first quarter. Meanwhile, though valuations recently reached a historical low in the city, firms haven’t picked up their stock-repurchase pace. Instead, sales of additional stock are near their highest since 2018.

The data help illustrate how the pandemic has distressed the corporate side of China’s economy, which contracted to start 2020, the first quarterly decline in decades.

Beijing has resorted to a long list of measures to counter the fallout from the coronavirus, but so far has shown little appetite for stimulus on the scale unveiled in the US or Japan even as profits slump and debt repayment pressures build.

"Most companies are preserving cash to survive the pandemic, as no one has the answer as to how long it’ll last. Right now cash is king,” said Chen Li, chief economist at Soochow Securities Co.

"They are in need of more aggressive stimulus and support policies, and apparently China hasn’t done enough on that front.”

Stocks have priced in the lost business from the pandemic, and Chen said buybacks and dividends would likely do little to help share prices in this environment.

There were 126 Hong Kong-listed dividend payers which decided to not make a distribution in the first three months of this year, the most for any quarter since 1985, the start of relevant data compiled by Bloomberg. About half of the firms are based in China while at least 60% count the country as its biggest source of sales.

The total doesn’t include HSBC Holdings Plc and Standard Chartered Plc, which on April 1 were among the British banks that scrapped dividends for 2020.

Meanwhile, as of Monday morning (April 27) 109 Chinese-listed firms had said in April they’re skipping a dividend payment. That’s the highest monthly total in a year.

Buybacks Calm

Stock repurchases tend to signal management optimism about a company’s shares, and prior buyback jumps since 2008 in Hong Kong corresponded with bottoms for the Hang Seng Index. But there’s been no repurchase spike yet. Reducing cash isn’t something a company is wont to do if executives are worried about their business’ operation or liquidity -- no matter how cheap the equity is trading.

Meanwhile, companies selling additional stock has often signalled that officials believe shares are richly valued, with the cost of equity for a firm usually higher than the cost of debt. As such, equity financing tends to be a less-preferred tool if a company has other means to raise cash.

In April, 15 firms and their shareholders in Hong Kong have sold equity via placements, the most since January. The $3.8 billion raised is also the second-highest monthly total in two years.

Despite the bearish signs from companies scaling down cash payouts and offering equity, corporate insiders at firms in the MSCI China Index have sharply slowed their selling this month. Officials at the firms sold a combined 7.2 million shares as of April 23, versus 147 million shares for all of March, according to data compiled by Bloomberg.

That’s caused insiders to be net buyers for the first time since November. - Bloomberg
Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
   

Did you find this article insightful?

Yes
No

100% readers found this article insightful

Next In Regional

Covid-19: Cases up by 3,545 bringing total to 291,774 (updated daily)
US-China tech war: Tech vlogger’s interview with Apple CEO Tim Cook goes viral amid thawing tensions
ByteDance makes biggest public commitment yet to Tencent video game rivalry with launch of stand-alone site for Nuverse
Parliament may still be convened during Emergency, says Istana Negara
Amnesty International: Hackers attacking Vietnam dissidents
Zafrul: Vaccine rollout puts Malaysia on track for economic recovery
Muhyiddin receives first dose of Covid-19 vaccine
Singapore trials smartphone app offering mini check-ups
Malaysia's CPI falls 0.2% in January
China imposes new rules to restrict independent online content creators

Stories You'll Enjoy


Vouchers