The Handan Steel Company, which isbased in north China's Hebei Province and listed at the Shanghai Stock Exchange, announced on Friday that it will pay about 350 million yuan (42 million US dollars) to buy back its own public stocks, according to a report appeared on the Chengdu Business News.

This was the first company announcing to buy back its shares inthe country after the China Securities Regulatory Commission, the country's stock market watchdog, promulgated regulations on listedcompanies' buy-back of public shares, which became effective on Thursday.

Under the new regulations, which are implemented under trial operation, the listed companies should submit their buy-back records to the commission and should be obliged to make public their important information.

The buy-back refers to the behavior that a listed company buys back some of its public shares and has them written off according to law in a bid to reduce the size of its registered capital, according to the regulations, which contains six chapters and 37 articles.

Analysts said that the move to allow listed companies to buy back public shares is helpful to activate the country's stagnant stock markets.

Under the new rules, the buy-back decision should be valid onlywhen more than two thirds of the shareholders with voting rights agree.

According to the announcement, the Handan Steel Company plans to buy back at most 60 million shares with the maximum price of 5.8 yuan per share, accounting for 4.027 percent of its total sharesand 12.161 percent of the tradable shares.

The company will use its own funds to buy back stocks, according to the announcement.

Based on the experience of international capital market, listedcompanies often buy back stocks when their stock prices are cheaper than their net assets in a bid to stabilize stock price and restore market confidence, experts said.

Handan company witnessed a steady growth of its profits in recent years, the Chengdu Business News quoted Li Buhai, board secretary of the company, as saying.

"The company's net assets per share was valued at 5.25 yuan by the end of 2004. Its share price has long been below this level," Li said.

The company's performance in the stock market does not accord with its actual business performance, and its value of investment is underestimated, which harms the common interest of shareholdersand the company's image, Li said.

The buy-back will change this situation, he added.

Thanks to this good news, the stock price of Handan Steel, which was closed at 5.08 yuan per share on Thursday, jumped 5.12 percent to 5.34 yuan on Friday, despite the 0.04 percent drop of the Shanghai Exchange composite index on the same day.

The overall bearish performance of China's stock market since 2001 has caused the stock prices of some steel companies to drop below their net asset value. Consequently, it is possible for these companies to buy back public stocks after the new rules became effective, the Chengdu Business News said.

The rapid growth of China's fixed asset investment in recent years has led to huge domestic demand and a price hike of steel products, making the steel industry one of the most profitable trade in the country.

Source: Xinhua