SHANGHAI Around two dozen mainly small listed Chinese companies have taken the unusual step of urging their employees to buy shares in a bid to prop up stock prices and help fend off collateral calls on stock-backed loans. In many cases, workers are stepping up, attracted in part by guarantees that their principal is safe. It's far from clear how these guarantees would work, with employees in some cases being asked to buy shares and hold them for at least 12 months.

The Shenzhen Stock Exchange - where all but one of the companies are listed - has taken notice, and has issued guidelines requiring companies to provide details on their guarantee plans, the Securities Times reported. Wu Kan, head of equity trading at Shanshan Finance, says that however well intentioned these efforts are, usually by the companies' founders or big shareholders, there is a question mark over their financial ability to make such guarantees.

But it could be a desperate move to prop up share prices to avoid margin calls," he said. And you can't rule out insider trading during the process, which is why regulators are demanding better disclosure,' he added.

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There were similar efforts during the China stock market crash, but then it was the government appealing to major shareholders' patriotism to buy and hold shares in what Beijing framed as a battle against speculators, both domestic and foreign. The scramble to raise share prices highlights the risks in using securities as loan collateral, a practice that by some estimates has quadrupled in China over the past two years.

For the most part, the companies involved are private, small, and have seen their founders or major shareholders post large batches of stock as loan collateral in recent months. But falling share prices have eroded the value of that collateral, raising the specter of forced liquidation - where lenders, often Chinese brokerages, make borrowers sell the pledged shares.

Selling the stock can further dent share prices, triggering a downward spiral. Shenzhen Fenda Technology Co SZ , which makes speakers and electronic accessories, was among the first to issue a statement, a week ago, encouraging staff to buy shares.

At the end of March, Xiao Fen, the company's chairman and top shareholder with a It did not say what the loan was for. Trading in the company's shares was suspended in late December pending a reorganization, but resumed in mid-April, when the stock price slumped to near their market crash low.

Last Friday, Xiao promised any employee who bought shares in the company by June 6 and held them for at least a year would be shielded from losses. I have too," said one worker, who gave only his family name, Li. I know some colleagues even bought shares with borrowed money. Shenzhen Fenda Technology shares jumped by a tenth after the announcement, but have since edged back down.

China Ups the Ante in Bid to Quash Financial Risk: QuickTake Q&A - Bloomberg

The price of Guangdong Biolight Meditech Co Ltd SZ stock fell by a quarter this year, undercutting the value of the Sun Xishan, a sales worker at Biolight, said he missed the chance to buy stock on the day of the announcement, but would try to get in on the shares later.

The chairman promised to cover losses if any, so it's hard not to be interested if one has money," Sun said. TOKYO Oil prices held near multi-month lows on Wednesday as investors discounted evidence of strong compliance by OPEC and non-OPEC oil producers with a deal to cut a global output.

TOKYO Bank of Japan Governor Haruhiko Kuroda said maintaining the current easy monetary conditions is appropriate because prices are lagging improvements in the economy and remain distant from the central bank's inflation target. Reuters is the news and media division of Thomson Reuters.

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China Ups the Ante in Bid to Quash Financial Risk: QuickTake Q&A - Bloomberg

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Pictures Home The Wider Image Photographers Focus In China, some firms ask workers to buy shares in a bid to raise stock pri Business News Fri Jun 9, 8: An investor looks at an electronic board showing stock information at a brokerage house in Nanjing, China May 24, By Samuel Shen and John Ruwitch SHANGHAI.

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