What Are Preference Shares?

Preferred stocks are stocks that have priority. The shareholders of the preferred shares enjoy priority in the company's assets and profit distribution, and their risks are relatively small. However, preferred shareholders have no voting rights on corporate affairs. ^[1] Preference shareholders do not have the right to vote and be elected. Generally speaking, they do not have the right to participate in the company's operations. Preference shareholders cannot withdraw their shares and can only be redeemed by the company through the redemption clause of the preference shares.

Preferred stock

Preferred stocks are stocks that have priority. The shareholders of the preferred shares enjoy priority in the company's assets and profit distribution, and their risks are relatively small. However, preferred shareholders have no voting rights on corporate affairs. ^[1]

Preference shares are usually specified in advance

1. Preference shares are usually predetermined

The main classifications are as follows:

(1) Cumulative preference shares and

Preference shares have the following four points:

1. The company's profits can be distributed prior to the common shares and at an agreed ratio.

2. When a company limited by shares is dissolved due to dissolution, bankruptcy, etc.

There are three ways to recover preferred stock:

(1) Premium method: Although the company redeems the preferred shares at a predetermined price, it often causes inconvenience to investors, so the issuing company often adds a "premium" to the face value of the preferred shares .

(2) When the company issues preferred shares, it proposes a part of the funds from the funds obtained to establish "

1. From the perspective of the New Deal in the market that the market is generally expecting management to launch:

First, the preference shares start from the issuance of new shares, restricting one share to be dominated, and preventing the creation of new large and small shares.

Second, the refinancing and repurchase of old stocks all issue preferred stocks that can never be circulated or enlarged.

Third, new shares are issued based on market value bought from the secondary market;

Fourth, the issuance of new shares is in rhythm with the market's tolerance and stability.

2. From the perspective of the impact of the existing "New Deal":

On the one hand, the "New Deal" of management's share reform has ruled out preference shares for new shares, and both measures have undergone serious changes.

On the other hand, if the market's positive expectations fail, the stock market plummets.

3. From the perspective of allowing the preference shares to be converted into common shares after three years:

First, make refinancing not to expand the total share capital of the stock, not to dilute the earnings per share of listed companies, and reduce the market's fear of refinancing bank shares.

Second, in order to supplement the company's insufficient capital and expand its re-profitability, a long-term

Risk 1. Default risk of preferred stocks, but defaults of preferred stocks rarely occur. In the US market, there was only one default of preferred stocks in the three years from 2004 to 2006, but when the credit risk increased, Will increase preference shares

Preferred stocks will not pose a shock to the market. Issuance of preferred stocks can meet the financing needs of listed companies, and because of the potential risks of preferred stocks and common stocks,

The launch of preferred stocks is being led by the Securities and Futures Commission,

China Government Network released the Guiding Opinions of the State Council on Pilot Pilots of Preferred Shares (hereinafter referred to as the Guiding Opinions) on November 30. The "Guiding Opinions" states that "In order to implement the spirit of the 18th National Congress of the CPC and the Third Plenary Session of the 18th Central Committee of the CPC, deepen the reform of the financial system, and support the development of the real economy, the State Council has decided to launch a pilot trial of preferred shares in accordance with the relevant provisions of the Company Law and the Securities Law. " ^[6]

When it comes to the qualitative aspects of state-owned equity in the future of mixed state-owned enterprises reform, will preference stocks be used?

Opinion 1: Shortcuts for Preferred Stocks

As the head of the mixed state ownership pilot state-owned enterprises in the SASAC's "Four Reforms", Song Zhiping, chairman of China Construction Materials Group Co., Ltd., believes that the implementation of preferred stocks can be a shortcut and breakthrough in entering mixed ownership. On the one hand, it can solve the problem of asset loss of state-owned shares, and ensure that state-owned shares have limited access to dividends and the priority of state-owned shares. On the other hand, it can increase the attractiveness to private capital.

He said that there can be three forms of cooperation in the promotion of preferred stocks. One is to add preferred stocks in private enterprises, and state-owned assets have priority and limited rights to dispose of assets; the other is in mixed-ownership enterprises, which can quantify a portion of state-owned shares into preferences. Shares, then take out the rest, and cooperate with common shares; the third is to treat the entire company as a national preference share and give it to the leadership or management. The entire team can be run by private enterprises or by private companies. SOE's own management team.

As preference shares have priority over ordinary shares in terms of profit distribution and distribution of remaining property, shareholders of preference shares do not have the right to vote and be elected. Generally speaking, they do not have the right to participate in the company's operations, and they cannot be withdrawn through redemption terms. Company redemption and other characteristics, many experts believe that the introduction of preferred stocks can be used as a new channel to reduce state-owned shares, which can better meet the interests of both state-owned and private equity. ^[8]

Opinion 2: "Preferred shares" is not the direction of mixed reform of state-owned enterprises

In some places, state-owned "preferred shares" have been mixed. Shareholders of state-owned preferred shares have not sent directors' rights, voting rights on major events, and repatriation of equity. Dividends cannot be increased or decreased according to operating conditions. They cannot participate in the distribution of residual profits and do not enjoy other than their own prices. Owner's equity, in fact, is similar to the form of debt financing and is not the direction of mixed ownership reform of state-owned enterprises. ^[9]