China’s IPO reforms: speculators abandon ‘indecent’ penny stocks as new rules reduce incentives for back-door listings

More stocks on the verge of trading suspension, possible delisting, as new rules clean up a dark corner of China’s US$11 trillion stock market

Investors abandon companies that only have so-called shell value as overhauled rules for IPOs take effect

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The Shanghai Composite Index and the Shenzhen Component Index are displayed on a stock ticker in Pudong’s Lujiazui Financial District in Shanghai on January 30, 2023. Photo: Bloomberg

Published: 7:30am, 28 Feb 2023Updated: 7:31am, 28 Feb 2023

Punters have been dumping penny stocks on China’s exchanges, driving prices down far enough and long enough for some companies to face delisting, as sweeping rule changes tamp down speculation about back-door listings and clean up a dark corner of the nation’s US$11 trillion stock market.

Shares of Sichuan Western Resources Holding have been trading below the minimum value of 1 yuan for 20 consecutive days as of Monday in Shanghai, meeting the delisting threshold set by the Shanghai and Shenzhen exchanges. The stock tumbled 5.1 per cent to 0.74 yuan on Monday. The market expects trading in the stock to be suspended, and the Shanghai bourse will then make a decision on whether to delist it.

Meanwhile, trading of jewel retailer Jinzhou Cihang Group has been halted since February 2 pending a review by the Shenzhen exchange. The stock last closed at 0.72 yuan after languishing below 1 yuan for 20 days in a row.

Investors are abandoning poorly run companies that only have so-called shell value after the stock-market regulator this month overhauled rules for initial public offerings (IPOs), relinquishing administrative control over the pace of offerings and allowing issuers to price new shares based on market demand.

An electronic board shows Shanghai and Shenzhen stock indexes at the Lujiazui financial district in Shanghai on October 25, 2022. Photo: Reuters

The changes also include reducing listing thresholds, a move that should make back-door listings less desirable. Regulators also signalled that they will be stricter about carrying out delistings to keep a lid on total listings.