Minority shareholders in one of the companies being used to trial stock market reforms in China have been offered a sweeter compensation deal after heavy pressure from institutional investors worried about the dilution of their interests.

Sany Heavy Industries, one of the four companies in a pilot programme for unwinding the large number of untradeable shares in listed Chinese companies, said on Wednesday it would increase the equity portion of a cash and paper offer to shareholders.

Although investors are believed to be pushing for bigger concessions from Sany, the decision represents a victory for minority shareholders, whose rights have often been neglected in China’s fledgling stock market.

According to analysts, the shareholder pressure has been led by SYWG BNP Paribas, a joint venture of Shenyinwanguo Securities and BNP Paribas, which is the biggest holder of tradeable shares in Sany.

Many analysts believe the regulators’ reform plan is crucial to improving the performance of the stock market following a drop of 15 per cent last year. About two-thirds of the equity in the 1,377 listed companies in China is non-tradeable shares, mostly in the hands of the state. The overhang has depressed prices for several years.

In a recent interview with the Financial Times, Shang Fulin, chairman of the China Securities Regulatory Commission, said: “The overhang of non-tradeable shares is a serious deficiency of this market and it has been restraining the market development.”

Under the CSRC plan, the non-tradeable shares are to be listed on the stock exchange and the holders of these shares allowed to sell them gradually.

Sany, which makes machinery, originally said it would give Rmb8 in cash and three shares for every 10 tradeable shares held, to compensate holders of the listed shares for the dilution of their stakes. Under its new proposal, which will be voted on at a shareholders meeting next month, Sany has increased the paper component of the offer to 3.5 shares for every 10.

According to UBS, Sany originally intended to offer two shares and Rmb1 in cash to holders of listed shares, but increased the offer after consulting the CSRC.

Analysts and investors said the increased offer showed there was scope for minority shareholders to negotiate better deals from majority holders.

However, Li Zhenning, president of Shanghai Rising Investment, a fund management company, said it would depend on the situation of individual companies. Only in cases where there was a risk of significant dilution would minority shareholders have a strong bargaining position, he said.

Sany is the only one of the four companies in the pilot programme which is not controlled by the state.

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