The new rules for delisting show the sword, and hundreds of shares are on the verge of delisting

Reporter Guo Jingting reports from Beijing

Recently, the State Council issued the "Several Opinions on Strengthening Supervision and Risk Prevention and Promoting the High-quality Development of the Capital Market", with a total of nine articles, known as the new "National Nine Articles". Under the guidance of the new "National Nine Articles" and "1+N" policies, the China Securities Regulatory Commission (CSRC) has issued supporting documents, the most concerned of which is the Guiding Opinions on the Strict Implementation of the Delisting System (hereinafter referred to as the "Delisting Opinions").

In the first two trading days after the release of the "Delisting Opinion", "micro-cap stocks plummeted" became the key word. On April 16, Guo Ruiming, director of the Department of Supervision of Listed Companies of the China Securities Regulatory Commission, made a clear explanation of the new rules and scope of application of delisting, emphasizing that the adjustment of the delisting index is aimed at increasing efforts to clear out the "zombie shell" and "black sheep", not for "small-cap stocks". Steady arrangements have been made in terms of standard setting and transition period arrangements, which will not have an impact on the market in the short term. On April 17, the Wind micro-cap index rose more than 9%, and small-cap stocks ushered in a sharp rise.

According to the calculation of the China Securities Regulatory Commission, the number of companies that will be delisted by the Shanghai and Shenzhen stock exchanges is expected to be about 30 next year, and about 100 companies may touch this indicator and implement delisting risk warning next year, and these companies will have more than a year and a half to improve their operations and improve quality, and they will still not meet the standards before they will be delisted by the end of 2025. In terms of market capitalization indicators, only 4 main board companies in Shanghai and Shenzhen currently have a market value of less than 500 million yuan, and there are no companies on the Science and Technology Innovation Board and ChiNext that are close to 300 million yuan in market value delisting.

Curb financial fraud

Fu Lichun, founding partner of Yuntai Capital, emphasized that the relatively weak link in the market-oriented registration system is delisting, which makes up for the shortcomings of delisting, which is conducive to the metabolism of the market and the survival of the fittest.

Compared with the capital markets of developed countries, the delisting rate of A-shares is relatively low. Wind data shows that between 1999 and 2019, only more than 60 companies were forcibly delisted in the 20 years. With the continuous increase of the delisting system, 135 companies have been delisted since 2020.

The reform of the delisting system further tightens the criteria for compulsory delisting, optimizes and improves the four types of delisting indicators for major illegal compulsory delisting, financial delisting, trading delisting, and normative delisting, scientifically sets the scope of application for major illegal delisting, strictly identifies companies with no investment value, and broadens multiple exit channels.

"This reform has lowered the number of years, amount and proportion of financial fraud triggering delisting, and adjusted the existing indicator of more than 500 million yuan and more than 50% of the amount of fraud for 2 consecutive years to more than 200 million yuan and more than 30% of fraud in 1 year, 300 million yuan and more than 20% of fraud in 2 years, and fraud for 3 consecutive years or more, in order to effectively curb financial fraud. Talking about the formulation of mandatory delisting policies for major violations, Guo Ruiming introduced this at the policy interpretation conference.

The reform adds three types of normative delisting, namely, the long-term non-resolution of capital occupation resulting in the "hollowing out" of assets, the continuous internal control of non-standard opinions for many years, and the disorderly struggle for control that leads to the inability of investors to obtain effective information of listed companies. At the same time, the delisting index of the operating income of loss-making companies on the main board will be moderately raised, and the companies that lack the ability to continue operating will be eliminated, and the market value index of the main board will be appropriately increased, so as to guide and promote the listed companies to improve their quality and investment value.

Talking about the highlights of the "Delisting Opinions", Tian Lihui, dean of the Financial Development Research Institute of Nankai University, told the reporter of "China Business News" that the highlights of the new delisting regulations are mainly focused on the stricter mandatory delisting standards, the diversification of delisting channels, the improvement of market efficiency and the transparency of information disclosure. The new regulations set stricter delisting thresholds for major violations such as financial fraud, and strengthen the rule of law and standardization of the market. In addition to financial delisting, a variety of delisting situations such as trading, regulation, and major violations have been added, making the delisting mechanism more comprehensive. The new regulations simplify the delisting process, cancel the suspension of listing and the resumption of listing, shorten the delisting consolidation period, and improve the overall operational efficiency of the market. The new regulations require listed companies to improve the quality and transparency of information disclosure, enhance market participants' understanding of the company's situation, and protect the rights and interests of investors.

Clear the zombie shell

For a long time, the existence of "shell" resources has hindered the effectiveness of the mandatory delisting rules.

In the past, a large part of the "shell resources" in the market were actually used as tools for "backdoor listing" and malicious speculation, resulting in a large number of speculations in the market. Tian Xuan, deputy dean of Tsinghua University's PBC School of Finance, pointed out that on the one hand, it has caused serious disruption to the normal trading order of the market, and even caused market fluctuations, harming the interests of investors. On the other hand, it has seriously weakened the implementation of delisting, hindered the formation of the survival of the fittest ecology in the market, and is not conducive to the improvement of the overall quality of listed companies in the capital market, let alone the development of the real industry.

As for the reason for the relatively small number of delistings in the mainland in the past 30 years, Tian Xuan told reporters that this is mainly because China's mandatory delisting standards are relatively relaxed, the implementation of delisting is not strict enough, and the process still needs to be further simplified. There is still room for enterprises to avoid delisting, such as "shelling" operations through reorganization, change of control and other means, resulting in a small number of enterprises that are actually delisted.

In Tian Xuan's view, the new regulations will further tighten the delisting standards, strengthen the implementation of the delisting of "zombie shell" enterprises, especially the strict supervision of "backdoor listing", and accurately attack the malicious speculation and market manipulation through "shell resources", which will greatly reduce the value of "shell resources" and reshape the market ecology.

"The implementation of the new delisting regulations must be strictly implemented, and some companies that meet the conditions for delisting must be resolutely delisted, and malicious 'shell' behavior must be cracked down, so that some immortal birds will disappear. Because we see the power of the new 'National Nine Articles', in the future, these malicious 'shell' behaviors will be severely punished for companies that do not pay dividends for a long time. Yang Delong, chief economist of Qianhai Open Source Fund, believes.

Delisting without dividends is a misreading

The implementation of the new delisting rules is imminent, and the trend of those underperforming stocks on the verge of delisting has attracted much attention.

In the first two trading days after the release of the "Delisting Opinion", penny stocks, shell resources, micro-cap stocks, loss-making stocks and other sectors fell sharply.

"The heavy losses in small-cap stocks and the ST sector reflect the contagion of market sentiment. Some investors, fearing that underperforming companies will not meet the new delisting criteria, vote with their feet, causing stock prices to fall. However, many investors are unaware of what to do, and there is herd behavior and panic, blindly selling high-performing companies that have no risk of delisting. Institutional funds were able to take over large-cap stocks, but small-cap stocks fell too much for a while. Tian Lihui thinks.

The revision of "fraudulent amount + fraudulent ratio" in the new delisting regulations reflects the regulator's zero-tolerance attitude towards financial fraud. At the same time, other risk warnings (ST) are implemented for companies that do not pay dividends for a long time, aiming to promote listed companies to reasonably return investors and improve the level of corporate governance. In Tian Lihui's view, the new delisting rules may lead to a sell-off in the market for underperforming stocks, as investors are worried that these companies may hit the new delisting criteria. Selling underperforming stocks is investors voting with their feet. A gentleman does not stand under a dangerous wall, this is the embodiment of reason, not blind panic.

It is worth mentioning that the revision of the stock listing rules introduced the arrangement of implementing other risk warnings (ST) if the dividends do not meet the standard, and some people interpreted it as "delisting if there is no dividend, and the CSRC responded urgently overnight, saying that this view is a misreading."

Guo Ruiming stressed that the new regulations focus on companies that have the ability to pay dividends but do not pay dividends for a long time or have a low dividend ratio. It should be pointed out that ST is not a delisting risk alert (*ST), but is mainly intended to remind investors to pay attention to the company's risks. If the company is ST for this reason alone, it will not lead to delisting. After meeting certain conditions, you can apply for "hat removal".

At the same time, the conditions set by the rules fully take into account the large R&D investment of enterprises on the Science and Technology Innovation Board and the Growth Enterprise Market, and some enterprises are still in the early stage of industry development. For enterprises with high R&D intensity (cumulative R&D investment in the last three fiscal years accounting for more than 15% of cumulative operating income) or large R&D investment (more than 300 million yuan in three years), even if the dividends do not meet the above conditions, ST will not be implemented.

According to the China Securities Regulatory Commission's estimation of the 2020-2022 data, there are only more than 80 companies in Shanghai and Shenzhen that implement ST due to substandard dividends.

For the implementation of promoting the implementation of "must be withdrawn", Tian Xuan suggested that the mandatory delisting standards should be further improved. Combine quantitative and qualitative standards, increase the necessary discretion of the exchange, set corresponding delisting criteria for listed companies at different levels, and strengthen the enforceability of delisting criteria. At the same time, it is necessary to enrich and refine the normative delisting indicators, clarify the specific deductions of operating income in the financial delisting indicators, and increase the difficulty of "shelling" through financial operations. In addition, an accounting firm can be introduced to conduct a continuous assessment of the follow-up operation and profitability of the "hat-off" company.