White Collar | HKEX’s delisting proposal lacks needed firepower
Proposal on delisting companies after a prolonged suspension fails to reconcile the lucrative trade in back door listings
Hong Kong Exchanges and Clearing on Friday issued a consultation paper on speeding up the delisting process, but the outcome is unlikely to be substantial.
According to the consultation paper, HKEX has proposed to delist companies after a continuous suspension for a prescribed period, possibly set at 12, 18 or 24 months.
In fact this is not much different or faster than the current practice. The exchange, in instances where a company has been suspended for a prolonged period, would issue three warnings, with each lasting six months, before delisted proceedings are initiated.
In comparison, markets in Shenzhen and Shanghai have a more automated delisting processes, where companies that have posted a loss for three consecutive years are booted off the exchange.
As of the end of June, there were 56 Hong Kong listed companies suspended from trade for more than three months, while 40 of these have been halted for more than a year. Among them, 25 companies did not have sufficient operations, three did not have a sufficient public float, and 28 failed to announce financial results.
This has led to the creation of a popular back door listing market in Hong Kong and is partly why it is hard for the HKEX to introduce progressive delisting mechanisms, as companies that have been suspended for a prolonged period still have value.