Sinopec and China Merchants Leverage PBOC's Scheme for Share Buyback

More than 20 Chinese listed companies have announced intentions to leverage a special lending program initiated by the People's Bank of China (PBOC) following the launch of a 300 billion yuan (approximately US$42 billion) re-lending scheme aimed at funding share buybacks and increases in shareholdings. This initiative, introduced on Friday, allows companies or their major shareholders to borrow at reduced interest rates to bolster their stock prices amid a faltering market rally. Prominent firms like Sinopec (China Petroleum and Chemical Corp) and China Merchants Port Group have already secured special loans from banks to facilitate share repurchases.

Analysts anticipate that more companies will participate, infusing fresh capital into the stock market, which has been showing signs of slowing momentum.

The program offers loans at interest rates of up to 2.25%, making it particularly appealing for businesses with high dividend payouts or net profit margins. Wang Mengying, an analyst at Nanhua Futures, noted that business owners might find share buybacks advantageous if their cost of equity financing exceeds this rate. She suggested that blue-chip companies with robust financials are likely to be the primary participants in this initiative.

Sinopec announced it had secured 700 million yuan in loans from the Bank of China for share purchases and an additional 900 million yuan for share buybacks. Similarly, COSCO Shipping Holdings reported obtaining loans from the Bank of China to facilitate a 2 billion yuan share repurchase. This influx of funding is expected to support stock prices and instill greater confidence in the market as companies act on favorable lending terms.