21st Century Business Herald reporter Cui Wenjing reported from Beijing
The repurchase of listed companies has been significantly strengthened, which is a major feature of the A-share market recently. Since the meeting of the Political Bureau of the Central Committee on July 24 first proposed to "activate the capital market and boost investor confidence", the mainland capital market has set off five rounds of buybacks, and hundreds of listed companies have issued buyback plans to "protect the disk" with real money and silver strength.
Increasing repurchase efforts is the direction of regulatory encouragement. On the evening of December 15, the China Securities Regulatory Commission revised and issued the "Rules for Share Repurchase of Listed Companies" to improve the convenience of share repurchase, improve the repurchase restraint mechanism, and make a number of substantive and detailed provisions on share repurchase.
According to the analysis of industry insiders, the most distinctive content includes four points:
First of all, a new condition for "disk protection repurchase" is added - if the closing price of the stock is 50% lower than the highest closing price in the last year, it will touch the "disk protection repurchase". This means that if the stock price of a listed company is "cut in half" within a year, it can be repurchased to maintain the company's value and shareholders' equity.
Second, the partial prohibition of repurchase window provisions will be abolished, and the basic conditions for general repurchase of listed companies will be adjusted from "listed for one year" to "listed for six months". This gives listed companies that are willing to buy back more freedom to buy back in a timely manner.
In addition, it is necessary to strictly guard against "flickering repurchases", severely crack down on illegal activities such as insider trading and market manipulation using repurchases, and prohibit the issuance of shares at the same time as repurchases. As a result, the repurchase can only be "sincere", not just a formality and ill-intentioned.
In addition, improve the relevant mechanisms, encourage the improvement of the charter, solidify the obligations of the board of directors, and better promote the role of endogenous stability.
Buybacks are encouraged in all directions
Looking at the new version of the "Rules for Share Repurchase of Listed Companies", the encouragement and support of the regulator for share repurchase are evident everywhere.
The most typical incentives include two points: on the one hand, some of the circumstances that used to prohibit buybacks have been reduced or even eliminated.
For example, in the past, a company could only be repurchased after one year of listing, but now the buyback time for newly listed companies has been shortened to six months. This better meets the buyback needs of newly listed companies.
Another example is to cancel the prohibition of repurchase window period, solve the practical problem that listed companies are subject to the window period and cannot repurchase, and reduce the repurchase range restrictions. According to the old version, listed companies have a window period before publishing annual reports, semi-annual reports, quarterly reports, performance forecasts or performance express reports, and they are not allowed to repurchase during the window period.
The interviewees believe that the compression or cancellation of repurchase restrictions will not only help to give listed companies greater freedom to repurchase, but also make listed companies increase the use of repurchase due to the triggering of the "protective repurchase" condition, which is generally conducive to the enhancement of the repurchase of listed companies and the protection of investors' interests.
Expanding the conditions for "protective repurchase" is another powerful measure for the regulator to encourage listed companies to repurchase. This can be broken down into a number of specific measures.
First of all, a new condition for repurchase "necessary to maintain the value of the company and shareholders' equity" is added, and "the closing price of the stock is 50% lower than the highest closing price in the most recent year" as one of the trigger conditions. In the opinion of the interviewees, this increases the opportunity for listed companies to maintain stock price stability through active buybacks.
Secondly, one of the trigger conditions of "disk protection repurchase" is adjusted to "the cumulative decline of the closing price of the company's shares reaches 30% within 20 consecutive trading days" to "the cumulative amount reaches 20%". This means that the repurchase trigger threshold has been lowered, which helps listed companies pay more attention to the maintenance of stock prices.
In addition, the restriction on the repurchase period before the close of trading will be shortened, and the original restriction on the declaration of repurchase transactions half an hour before the close of trading will be adjusted to the prohibition of declaration during the closing call auction stage, and the daily repurchase period will be increased. Although this provision has a relatively small impact compared with the above-mentioned provisions, it gives listed companies greater freedom to choose the timing of repurchases, demonstrating the regulatory encouragement of listed public repurchases.
Improve the repurchase restraint mechanism
The revision of the "Share Repurchase Rules for Listed Companies" has made special arrangements in terms of the repurchase restraint mechanism.
On the one hand, listed companies are encouraged to form repurchase mechanism arrangements, and the provision of "encouraging listed companies to improve the share repurchase mechanism in their articles of association or other governance documents, and clarifying the trigger conditions and repurchase process of share repurchases" is added.
On the other hand, when the obligations of the board of directors in the case of "disk protection repurchase" are solidified, and the conditions for "disk protection repurchase" are clearly touched, "the board of directors should timely understand whether there are major events and other factors that may have a greater impact on the stock price, actively communicate and exchange with shareholders, especially small and medium-sized shareholders, through various channels, and fully listen to the opinions and demands of shareholders on whether the company should implement share repurchase." The relevant requirements are also reflected in the "Opinions on Supporting Listed Companies to Repurchase Shares" (CSRC Announcement [2018] No. 35) issued by the China Securities Regulatory Commission, the Ministry of Finance and the State-owned Assets Supervision and Administration Commission in 2018.
Listed companies actively implement buybacks to return investors
It is worth noting that since the second half of this year, the repurchase efforts of listed companies have increased significantly. Since July 24 alone, the A-share market has set off at least five rounds of buybacks of listed companies, and hundreds of listed companies, including many central state-owned enterprises, have taken the initiative to respond to the policy call and protect the market with the strength of "real money".
Taking the monthly repurchase amount as an example, it was still 5.981 billion yuan in May, and has continued to increase every month since then. In August, it exceeded 7 billion yuan for the first time to reach 7.786 billion yuan, in September it exceeded 8.596 billion yuan, in October it broke the record again to 9.705 billion yuan, and in November it exceeded 10 billion yuan to 11.651 billion yuan.
According to the analysis of the interviewees, due to the time lag between the release of the repurchase plan and the implementation, it will take time for the actual repurchase amount brought by the repurchase wave to appear, and the repurchase amount in the capital market is expected to further increase in the next few months.
According to the Company Law, the purpose of repurchase by listed companies is divided into six categories and three types. Among them, the most common repurchase is "equity incentive" and "employee stock ownership plan", which are the two types of repurchase with the goal of "convertible debt to equity", the optimization of the governance structure, in the short term, reduces the number of shares issued, can form a certain support for the stock price, and in the long run, the introduction of value creators, long-term investors, is also conducive to the company's value enhancement.
Buybacks are used to "maintain the company's value and equity rights", which can more fully release the signal of undervaluation of the stock price, clearly convey value information to the market, and reduce the number of shares in circulation for a certain period of time, so as to support the stock price and achieve "disk protection". Buybacks for this purpose are also adopted by a small number of listed companies.
Under the condition that the overall value of the company remains unchanged, the value of assets and earnings per share will increase, which can have an immediate effect on returning investors, which is an important way to return investors and the most anticipated share repurchase method by the market.
It is worth mentioning that from the perspective of the purpose of recent repurchase of listed companies, more and more listed companies take the initiative to choose to cancel after share repurchase, and the willingness and effect of direct return to investors are more obvious. Regulators also encourage listed companies to use buybacks and cancellations to better reward shareholders and promote the company's value.
Increase the supervision of repurchase violations
Under any system, it is inevitable that some people will steal from each other and seek personal interests in the name of responding to the direction encouraged by the system. While reducing the restrictions on repurchases and increasing the constraints on "protective repurchases", the China Securities Regulatory Commission (CSRC) has also made it clear that it will intensify its crackdown on three types of repurchases - flickering repurchases, using repurchases to engage in insider trading, market manipulation, etc.
Hezong Technology has been fined for "flickering repurchase". On November 17, due to the promise of repurchase but not implementation, Hezong Technology was ordered to correct by the Beijing Securities Regulatory Bureau, and the relevant violations were included in the integrity file, requiring the repurchase to be completed in accordance with the rectification period. The Shenzhen Stock Exchange also issued a letter of concern to initiate disciplinary proceedings against Hezong Technology and the violating parties.
Relevant experts believe that this shows the determination of the regulatory authorities to be strict in accordance with the law, crack down on all kinds of information disclosure violations and regulations, and urge listed companies to strictly fulfill their repurchase commitments. The "repurchase default" was ordered to complete the repurchase within a time limit, and the regulatory measures of "long teeth with thorns" and "real and hard" became the new prescription.
At the same time, the China Securities Regulatory Commission made it clear that it will strengthen regulatory law enforcement in the future, and resolutely crack down on relevant entities that use buybacks to engage in insider trading, market manipulation and other illegal acts once verified. The above-mentioned experts believe that this shows that after the tolerance and convenience of the repurchase system are improved, the China Securities Regulatory Commission will pay more attention to the maintenance of market order, crack down on illegal acts, create a good market ecology, and provide a solid guarantee for the standardized use of repurchase tools.
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