The first batch of 300 billion yuan in share repurchase and increase loans is being implemented.
On the evening of October 20th, several listed state-owned enterprises and large private enterprises announced that they have reached cooperation agreements with banks on special loans for share buybacks or increases, involving a total amount of funds exceeding 11 billion yuan, covering the four major state-owned banks and two large joint-stock banks.
Interviewees told First Financial that this tool will further enhance the enthusiasm of listed companies or major shareholders to repurchase and increase their own stocks. For banks, special loans for stock increases and buybacks are relatively special. The loan issuance stage is a key node for risk prevention and control, and the special fund is used for special purposes, which is the red line of the business.
The first batch of special loans for share buybacks and increases has been implemented.
On the evening of the 20th, 23 listed companies in Shanghai and Shenzhen announced that the company or major shareholders will use bank special loan funds for share buybacks or increases. This means that the first batch of special loans for share buybacks and increases has officially landed in the A-share market.
The reporter noticed that the commercial banks involved this time include the four major state-owned banks: Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank, as well as two national joint-stock banks: China Merchants Bank and CITIC Bank.
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A person from the credit center of a large joint-stock bank told the reporter that the listed companies disclosed the announcement of special loans for share buybacks and increases on the exchange, indicating that the loan application has been approved. These companies are all relatively high-quality listed entities that meet the relevant qualification requirements for special loans and are prioritized for approval, and the process is also relatively fast.
Previously, the People's Bank of China, the Financial Regulatory General Administration, and the China Securities Regulatory Commission issued the "Notice on Matters Related to the Establishment of Special Loans for Share Buybacks and Increases" (hereinafter referred to as the "Notice") on the 18th, establishing the first batch of special loans for share buybacks and increases at 300 billion yuan, with an annual interest rate of 1.75%, a term of one year, and renewable as necessary.
A person from a state-owned bank said that the special loans for share buybacks and increases provided by the bank are "working capital loans" that can be directly included in the company's operational turnover credit limit at the bank. This also means that listed company customers can quickly complete the approval process by submitting a working capital loan application or adjusting the purpose of existing working capital loans.
In addition to the first batch of special loans for share buybacks and increases that have been implemented, the reporter learned that several commercial banks are actively collecting the financing demand amounts and timing plans of listed companies, stating that they will soon start the approval process. It is expected that soon there will be another batch of listed companies disclosing special loan announcements.At present, there is a batch of names still in the state of intention confirmation, application, and pending approval, and the progress will be accelerated subsequently. The aforementioned shareholding bank official told the reporter that the bank will apply for re-lending to the central bank based on loans; for listed companies that have been approved for loans, the loan funds will be issued in a timely manner, flowing to the bank accounts of directors, supervisors, senior executives, or the listed companies themselves.
Regarding which listed entities are more likely to obtain credit, several bank credit center officials told the reporter that the target customer group should strictly conform to the national strategic guidelines and the bank's credit policy guidelines, including those enterprises with prominent main businesses, stable operating conditions, good credit records, strong repayment capabilities, competitive advantages, and growth potential in the industry.
"In the credit process, priority should be given to listed companies with stable market value, active trading of stocks in the secondary market, and good liquidity, especially those that have been included in the constituent stocks of the CSI 300, CSI 500, CSI 1000 and other indices." A shareholding bank official in East China told the reporter.
In addition to giving priority to the aforementioned whitelist companies, some banks have also listed a "negative list." An urban commercial bank official said, for example, listed companies and shareholders whose pledged share ratio to the outside is too high, those affected by the new减持 rules and restricted from reducing holdings, and stocks of listed companies or their shareholders that have been investigated by the China Securities Regulatory Commission in the past half year, all of these require cautious involvement.

Several key points of bank risk control
In principle, the interest rate for banks to issue special loans for stock buybacks and increases should be controlled below 2.25%. Industry insiders pointed out that if the dividend yield of a listed company is higher than 2.25%, its motivation to use loans for stock buybacks and increases will be more obvious. According to the dividend data for 2023, there are a total of 1,106 listed companies in the A-share market with a dividend yield exceeding 2.25%, accounting for 20.62%.
However, for front-line bank customer managers and credit review officers, under the low profit space of only 50BP (basis points), the difficulty of credit for special loans for stock buybacks and increases will increase compared to ordinary corporate loans, rather than decrease.
Special re-lending for stock buybacks and increases is a new tool, under which commercial banks pay more attention to credit compliance and risk prevention and control. In the process of understanding by the reporter, many commercial bank risk control personnel expressed concerns about the difficulty of risk control for this new tool: "Funds are invested in stocks, and stock prices rise and fall, forming new challenges for bank risk control."
Regarding the use of related accounts and loan funds, according to the "Notice" provisions, listed companies and major shareholders applying for loans should open a separate special securities account, specifically for stock buybacks and increases. This special securities account is only allowed to open one capital account and should choose the lending institution as the third-party custody bank. This special securities account is not allowed to handle transfer custody or transfer designation procedures.
The "Notice" also stipulates that it is necessary to ensure that loan funds are "used for special purposes and operate in a closed loop." 21 financial institutions open special bank loan accounts for listed companies and major shareholders, and at the same time open capital accounts corresponding to the aforementioned special securities accounts. Financial institutions will issue loans to this capital account and supervise listed companies and major shareholders to use the special funds for stock buybacks and increases. Before the loan is fully repaid, the capital account is not allowed to withdraw cash or transfer funds externally."Fluctuations in stock prices and market value imply uncertainty in the value of pledged collateral," a commercial bank insider told the reporter. If the principle of unified credit granting is followed, the risk rating will be determined based on the credit rating of the borrowing company, and the corresponding risk reserve should be provided for; if the bank has applied for a reloan from the central bank, it also needs to provide for risk reserves, but the specific operations are not explicitly mentioned in the regulatory documents.
Customers who receive special loan funds (listed companies or their major shareholders) will face certain disposal difficulties for banks if they fail to timely add margin, engage in improper stock investments, or default on loans. "Shares purchased or repurchased are usually subject to a lock-up period, and even if the customer intends to sell shares to repay the loan, the exchange rules do not allow it," a securities market person told the reporter.
The aforementioned person said that for repurchase and increase loans, banks may need to set up similar risk control measures, such as margin calls, adjusting the pledge ratio, and agreeing on repurchase terms, to ensure the safety and compliance of the loan. These measures can help banks protect their interests during stock price fluctuations and also provide a risk management mechanism for borrowers. However, the specific terms and requirements need to be determined based on actual situations and regulatory agency regulations.
In addition, for banks, if they want to dispose of pledged collateral - that is, stocks, they must go through multiple steps such as litigation, execution, transfer, and auction. This process is not only time-consuming but also, once announced, may lead to a decline in stock prices, thereby affecting whether the market value of pledged stocks is sufficient to cover the principal and interest of the loan. Therefore, banks need to fully consider these potential risks and complexities when disposing of such loans.
Tian Xuan, a member of the Academic Committee of Tsinghua University and Dean of the National Institute of Financial Studies, said that regulatory authorities need to refine the loan usage process and supervision mechanism for this tool, strengthen the monitoring of the flow of loan funds, and ensure that funds are used for their intended purpose.
"The primary principle is to ensure the special use of loan funds, which is an uncrossable bottom line," a commercial bank insider told the reporter. For purposes such as reducing registered capital, employee stock ownership plans, or equity incentives, approval can be granted. In subsequent operations, loans that may be used under the guise of "maintaining company value and shareholder rights" will be carefully considered, combined with the specific loan conditions of the borrower for detailed assessment and decision-making.