China's securities regulator tightens delisting rules for poor performers
The mainland has issued a draft of new rules to get loss-making companies or those in violation of regulatory practices to delist, in its latest move to improve stock market conditions.
The mainland has issued a draft of new rules to get loss-making companies or those in violation of regulatory practices to delist, in its latest move to improve stock market conditions.
The China Securities Regulatory Commission published the draft rules yesterday and is seeking public feedback. It is not clear when formal rules will be published, but the draft is typically finalised with modifications within two months.
For the first time, the regulator has offered a variety of choices for poorly performing companies to apply for delisting, giving them preferential treatment such as priority to relist if their performance improves. The CSRC outlined the process in a series of documents on its website.
In China, it is more important to force the implementation of rules
Companies that are reluctant to delist but fall under the regulatory conditions to delist will be forced to do so, and will not be given preferential treatment, the draft rules say.
Those that make false financial declarations in their initial share sales or earnings reports and companies that post years of losses or see their share prices close under the face value of their shares for 20 days, fall into the category.
The CSRC said 78 firms had been delisted from the Shanghai and Shenzhen exchanges since delistings were allowed in the early 2000s for reasons including poor earnings performance.
But since the first delisting of a loss-making company, Shanghai Narcissus Electric Appliances in 2001, the progress to kick out poor performers or rule breakers had been slow and had largely been suspended until recently, analysts said.
Among other factors, the slow delisting process was because of resistance from various parties, including local governments, to give up their listing resources, analysts said.
Poorly performing companies were thus allowed to suspend share trading for years to conduct so-called corporate restructuring to the detriment of investors.
However, there have been signs regulators are reviving the process as Beijing steps up the pace of market reforms since the country's new leadership took power in November last year.
Regulators announced in April the delisting of loss-making shipping company Nanjing Tanker Corp from the Shanghai exchange, marking the first time a company backed by the central government was dropped from a domestic exchange.
"The draft rules published reflect improvements in many aspects," said Qian Qimin, the head of research at Shanghai Shenyin and Wanguo Securities. "However, past experiences have shown that in China, it is more important to force the implementation of rules."
