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Corruption in China

Electrical manufacturer faces delisting from Shenzhen’s growth enterprise board, in first case involving misleading IPO data

PUBLISHED : Thursday, 02 June, 2016, 8:35pm
UPDATED : Monday, 06 June, 2016, 5:22pm

Energy-saving electrical equipment manufacturer Dan Dong Xin Tai Electric Co may have its mainland stock market listing revoked after being traded for more than two years, as regulators tighten up on misconduct related to information disclosure.

Dan Dong Xin Tai Electric, based in northeast China’s Liaoning province, said it had received a notice from the China Securities Regulatory Commission (CSRC) warning that it may be delisted.

Xin Tai is suspected of providing misleading information in its IPO prospectus and of breaching other regulations regarding information disclosure, the Shenzhen ChiNext board-listed company said in a filing on Wednesday night.

If the delisting proceeds, the company will be the first to be removed from the ChiNext Index, China’s NASDAQ-style board, and the first removed from a mainland stock market for misleading investors in its IPO documents.

The Shanghai and Shenzhen bourses both amended delisting rules in 2014.

Whether Xin Tai will face being delisted remains uncertain, according to an industry source.

“Local provincial governments are keen to maintain the number of listed companies. We will see if the CSRC could stand the pressure this time,” the source said.

In 2012, central China’s Hunan based Wanfu Biotechnology Agricultural Development was found by the CSRC to have inflated its pre-IPO profit by 90 per cent. The company chairman was sentenced to three years in prison and the company was fined 8.5 million yuan (HK$10.04 million), however authorities stopped short of proceedings that would have forced the company to give up its listing. Authorities also banned its IPO sponsor, Ping An Securities, from sponsoring new listings for three months and fined it 76 million yuan.

Xin Tai said in its filing that investors should be aware of the risk that it may be delisted if the CSRC issues a formal punishment decision.

“The CSRC would issue a notice of warning to a company before it issues a formal punishment decision. During this period, the company can appeal,” said a Shenzhen based lawyer who asked not be identified.

“But it would be difficult for Xin Tai to reverse a delisting order,” she added.

CSRC chairman, Liu Shiyu, who took office late February, has pushed for tighter regulatory supervision while putting reform and institutional innovations on hold, a regulatory source said.

“The CSRC is tightening up scrutiny, from IPO to private placement to back-door listing attempts made by US-listed Chinese companies,” Pi Haizhou, an independent securities commentator said.

Last week, the CSRC rejected three IPO applications. That contrasts with the period from late November to early March, when not a single IPO application was turned down.

Xin Tai filed its IPO application in November 2011 and debuted on the Shenzhen bourse in January 2014, according to public records.

An investigation by the CSRC found Xin Tai falsified financial accounts from 2011 to 2013.

Following its listing, Xin Tai continued to submit false information and failed to disclose a 63.88 million yuan loan from the company to the company controller for personal use, Xin Tai’s filing said.

Shares of Xin Tai have been suspended from trading from May 23. Trading in the shares will resume when “related uncertainties” are removed, the company said in the filing. The company was fined 8.32 million yuan and 17 people received administrative punishments worth 19.07 million yuan.

Three companies have been forcibly delisted in China since late 2014.