Restructuring not an option for lossmakers

PUBLISHED : Saturday, 12 March, 2011, 12:00am
UPDATED : Saturday, 12 March, 2011, 12:00am

The mainland will bar underachieving start-ups traded on the second-board market from restructuring assets to avoid delisting, according to Shenzhen Stock Exchange chairman Chen Dongzheng.

The Shenzhen bourse, home to the country's Nasdaq-style ChiNext market, has drafted two proposals for the delisting mechanism for the start-up board, Chen was quoted by the official China Securities Journal as saying.

The failed small firms on the market would be either directly delisted or demoted to the Securities Trading Automated Quotations Network, an over-the-counter market, he said, stressing that no asset restructurings would be allowed to bail them out.

Chen's remarks reflect increasing efforts to clean up the start-up board after investors who so enthusiastically pushed up prices got a wake-up call when some stocks reported a drop in earnings.

The China Securities Regulatory Commission has rejected 61 initial public offering applications by companies seeking to list on the ChiNext market. The tightened approval procedure resulted from mounting worries on the quality of start-ups listed on the second board.

Thousands of retail investors flocked to the market when it opened in late 2009, but were disappointed when the earnings of about 30 companies fell last year.

Investors had taken it for granted that all of these so-called high-growth companies would report hefty profit growth.

The Shenzhen bourse has been under pressure to create a specific delisting mechanism for the start-up board to drive out underachievers.

'Once there's an efficient mechanism to kick out the bad companies, the overall quality of the second board can be guaranteed,' said Citic Securities analyst Sun Chao. 'In the long term, the delisting mechanism will benefit the growth of the board.'

On the mainland's exchanges, hundreds of listed firms have restructured assets to shore up earnings in the past two decades.

These restructures involve the parent companies spinning off non-performing assets from the listed arms before injecting quality and profitable assets to ensure the companies maintain listing status.

The mainland has yet to create a real delisting system for the stock market. Only a few habitual lossmakers have been thrown out of the Shanghai and Shenzhen exchanges and demoted to the OTC market.

Most of the perennial lossmakers on the Shanghai and Shenzhen exchanges bailed themselves out through asset restructuring.


Some investors thought fat profits were assured when ChiNext opened

Thousands were disappointed when the earnings of this many companies on the start-up board fell last year: 30