‘Shell company’ shares plunge as China tightens back-door listing approvals

Shell companies plunged on the A-share market on Monday after China’s securities regulator issued its most stringent regulation draft on Friday aimed at tightening supervision of back-door listings.

Companies marked with “ST” and “*ST” in their ticker, indicating continued losses or other delisting risks, saw their share prices drop across the board. A total of 40 companies among the 58 traded companies in this sector declined as of the end of trading Monday, while 17 companies fell by the daily limit of 5 per cent, according to mainland data provider Eastmoney.

“Back-door listings will become much more difficult if the regulation draft issued on Friday becomes valid. The strict limit for fund raising will also discourage back-door listing attempts ... it will also scrap the value of the shells,” said Adam Xu, a mutual fund manager based in Shanghai.

In China, listed companies suffering from poor financial performance will often transfer control of the listed entity to other investors through a back-door listing, also called a “reverse merger”.