State-owned steel giant China Baowu Steel Group Corp. Ltd. has increased its stake in a listed subsidiary to stabilize the unit’s share price after it was pummeled in the wake of the coronavirus outbreak.
Through an investment arm, Baowu Steel has arranged to increase its stake in Baoshan Iron & Steel Co. Ltd. on Tuesday by 0.32%, which amounts to 71.7 million shares, according to a Baoshan filing to Shanghai Stock Exchange the following day. The parent company also plans to boost its stake by as much as 1.68% within six months, which would bring its total shareholding to 63.93%.
Baoshan’s shares jumped 6.13% on the day.
“The expansion was aimed at restoring the market’s confidence after a crash in China’s reopening A-share stock market due to the pneumonia outbreak,” according to an internal company document seen by Caixin. “It is the responsibility of Baowu, as a Chinese state-owned enterprise (SOE), to demonstrate its resolve by sticking by small investors through thick and thin.”
The rebound in Baoshan’s share price came after the Chinese mainland’s benchmark stock index plunged by nearly 8% on Monday due to the worsening coronavirus outbreak. From Jan. 23 through Monday, Baoshan’s stock fell 11%.
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Other listed companies have launched plans to buy back their own stocks in an effort to stabilize their share prices. On Wednesday, chemicals company Zhejiang Longsheng Group Co. Ltd. announced plans to spend 500 million yuan ($71.3 million) to 1 billion yuan over the next six months to buy back its shares at a price of 13 yuan each. Construction giant China Gezhouba Group Co. Ltd. announced Tuesday that it plans to increase its holdings of its own shares by 0.5% to 2% over the next six months. New Hope Liuhe Co. Ltd., a major Chinese animal feed producer, has earmarked 200 million yuan to 400 million yuan to buy back its own shares at a maximum price of 20 yuan each.
In China, it is a common tactic for companies to buy back their own stock after their share prices tumble. The buybacks can help put a floor under a stock’s price and are often backed by the government. During the stock market crash of 2015, the State-owned Assets Supervision and Administration Commission, which oversees the country’s biggest SOEs, released a statement encouraging SOEs to increase their stakes in their own companies and banned them from selling stock, according to the administration’s website.
Contact reporter Lu Yutong (yutonglu@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)
