Habitual loss-makers face delisting as Chinese regulator toughens stance

CSRC to focus on enhancing the overall quality of listed firms as they are the foundation of a healthy capital market, says chairman

PUBLISHED : Sunday, 26 February, 2017, 4:15pm
UPDATED : Sunday, 26 February, 2017, 10:35pm

At least six underachieving firms are likely to be expelled from the mainland stock exchanges as the regulator pledges to safeguard investors’ interest.

Four perennial loss-makers including Shanghai-listed Jilin Jien Nickle Industry and Kunming Machine Tool, as well as Shenzhen-listed Pangang Group Steel Vanadium & Titanium and Chongqing Jianfeng Chemical, have forecast that their 2016 earnings will be in the red for a third consecutive year.

The other two firms, Geeya Technology and Huaze Cobalt & Nickel Material, both violated the mainland’s securities laws and are also facing a potential delisting, as the China Securities Regulatory Commission (CSRC) toughens its stance in a bid to clean up the stock market.

“The regulator has sent out a clear message that it would heighten requirements on publicly-traded firms. Consequently, they are definitely prepared to kick out the unqualified listed firms,” said Huatai Securities analyst Liu Qiaoyu. “It is thought that more than just six firms are being targeted [for delisting].”

The regulator has sent out a clear message that it would heighten requirements on publicly-traded firms. They are definitely prepared to kick out the unqualified listed firms
Liu Qiaoyu, Huatai Securities

The lack of an effective delisting mechanism has been a constant source of criticism against the A-share market, and has been blamed for leaving millions of retail investors penniless.

Only 2 per cent of mainland-listed companies reporting three consecutive years of losses have been delisted since Beijing established the stock market in 1990, compared with 5 to 6 per cent in developed markets.

The majority of the habitual loss-makers resorted to asset restructuring deals to rake in one-off gains to shore up their profits, thereby avoiding delisting.

By January, 43 out of 50 special treatment firms - those reporting losses for two straight years - had published statements that forecast profits for 2016.

CSRC chairman Liu Shiyu told a press conference on Sunday that the regulator would focus on enhancing the overall quality of listed firms because they were the foundation of a healthy capital market.

All the 3,000-odd A-share firms will report their full-year earnings for 2016 before the end of April.

If it were to be delisted, Geeya would become the first company traded on the Nasdaq-like ChiNext market to be thrown off the trading floor at the Shenzhen Stock Exchange.

The CSRC has faced a chorus of criticism over its leniency towards technology start-ups since the ChiNext market was launched in late 2009.

Liu, a former deputy governor of the central bank and chairman of the Agricultural Bank of China, took the helm of the CSRC a year ago, and is tasked with stabilising the stock market in the wake of the crash in mid-2015.

He took drastic actions to bolster investor confidence by shelving the plan to create a new board for emerging industries and toughening approval procedures for asset revamp deals designed to improve the appearance of corporate earnings.

China bars companies from raising funds using backdoor listings

Last year 27 firms conducted reverse merger deals, known as backdoor listings, on the mainland market, down 64 per cent from 75 in 2015.

“The investing public expects the regulator to tighten the delisting rules in the near future,” said Wu Kan, the head of equity trading at Shanghai investment firm Shanshan Finance. “It will be of long-term benefit to the market because, after all, investors here still have a habit of chasing rallies of unprofitable stocks that are rumoured to be restructured.”

In 2012, the Shanghai and Shenzhen stock exchanges said habitual loss-makers couldn’t count on exceptional gains to avoid delisting, but they waived the rules the following year.