China stock rout puts US$613 bil of share pledges at risk

(Oct 17): The rout in Chinese equities is throwing the spotlight on $841 billion of shares pledged as collateral for loans.

Loans extended to company founders and other major investors who pledged their shareholdings as collateral emerged as a popular financing channel in recent years. But given the losses in equities -- Shenzhen’s stock benchmark is down 34% in 2018 -- there’s a growing risk that brokerages will be forced to sell the shares, accelerating the downturn.

At least 35 companies have seen pledged shares liquidated by brokerages since the start of June, more than triple the 10 in the first five months of the year, according to company filings. At least two firms announced after Monday’s close that their shares were at risk of forced selling, including Jilin Zixin Pharmaceutical Industrial Co., which plunged by the 10% daily limit.

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