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. Last Updated: 07/27/2016

China in $270Bln Stock Revamp

SHANGHAI, China -- China extended a program to make $270 billion of mostly state-held stock publicly traded, the biggest shakeup of ownership since the nation's exchanges opened in 1990.

More than 1,300 companies, including Asia's biggest refiner, China Petroleum & Chemical Corp., can "gradually" convert their nontradable shares, the regulator said Wednesday in a statement. Forty-six companies that took part in a trial program sought minority shareholder support by offering compensation for any losses caused by the new supply of stock.

The government is unwinding five decades of state ownership to bring its exchanges more in line with global standards, before opening them wider to investors including Morgan Stanley and UBS. The program seeks to address concern among investors that the government will flood the market with stock, which has been blamed for a four-year slide in share prices.

"This is a complete overhaul of China's markets and addresses the threat that's been hanging over stocks," said Zhang Lan, who oversees the equivalent of $120 million as research director with Guolian Fund Management in Shanghai.

The Shanghai and Shenzhen composite indices, tracking yuan-denominated A and foreign-currency B shares, fell to eight-year lows in June and July, marking a slump that wiped more than half the value from the nation's stock markets since key indices reached a record high in 2001. The Shanghai index rose 1.5 percent to 1167.14 at the 3 p.m. local time close. The Shenzhen benchmark gained 0.8 percent to 276.57.

By making all of China's shares tradable, the government aims to raise the private ownership of companies and improve corporate governance.

"It's a profound shakeup that will make the stock markets more fully functional, giving small investors a bigger say in management," said Yan Ji, who helps to manage the equivalent of $720 million with First Trust Fund Management in Shanghai. "The market will offer more investment opportunities to institutional investors like us and the insurance companies."

The changes will also broaden the choices for Morgan Stanley and the 26 overseas investors that are now allowed to buy as much as $4 billion of China's yuan-denominated A shares.

"It's going to be a considerable enrichment of the A-share market," said Walter Lin, chief executive of ABN AMRO Xiangcai Fund Management, which has about $4 billion of assets and managers the $75 million quota granted to its partner ABN AMRO Holding, the Netherlands' biggest bank.

This is China's third attempt in six years to resolve the non-tradable shares issue. The government scrapped earlier attempts in 1999 and again in 2001 after stock markets tumbled. Nontradable stock accounts for about two-thirds of the market value of the nation's publicly traded companies.

Like the 46 that took part in the trial program, companies will need to win approval from holders of two-thirds of the tradable A shares.