Listed companies are intensively implemented ST, and the "delisting alarm" is frequently sounded, and A-shares are accelerated to "clear"

The Economic Observer

2024-05-18 11:59Published on the official account of Beijing Economic Observer

Economic Observer reporter Cai Yuekun Under the heavy blow of supervision, more and more listed companies have been subject to risk warnings for touching the regulatory red line, and "wearing stars and hats" and "delisting alarms" have frequently appeared.

On May 15, Shilong Industrial (002748) received the "Administrative Penalty Decision" due to false records in the financial indicators of the annual report disclosed by the company, and resumed trading since the market opened on May 17 and was subject to other risk warnings, and the stock abbreviation was changed to "ST Shilong".

On May 14, Huijin shares (300368. SZ), Strait Innovation (300300. SZ), special information (000070. SZ) was subject to regulatory measures or administrative penalties by the local securities regulatory bureau for false records in its previous annual report, and was put on "other risk warnings" and put on the hat of "ST".

Since the unveiling of the new "National Nine Measures" and a series of regulatory policies on delisting on April 12, the number of listed companies in the A-share market that have been put on risk alert has surged. In the past one month, more than 100 listed companies have been punished by regulators for touching the "red line" such as false records in the financial indicators of the annual report, and the stock abbreviations have been intensively named "ST", thus setting off the most intensive wave of securities abbreviation changes in history. Wind data shows that in just ten days from May 6 to May 15, more than 50 listed companies were put on "other risk alerts".

At the same time, under the sword of the new delisting regulations, the "delisting alarm" sounded frequently over A-shares.

A large number of ST stocks (including ST shares and *ST shares, the same below) fell one after another, encountering panic selling by investors. As of May 15, nearly 30 ST stocks such as *ST Poly, ST Huijin, ST Xiachuang, *ST Nongshang (300536.SZ), ST Yuancheng (603388.SH), and ST Baili (603959.SH) fell by more than 20% in 5 working days.

The Economic Observer noted that the controlling shareholders of the three listed companies, Huijin Shares, Strait Innovation and Special Information, are Handan SASAC, Pingtan SASAC and Shenzhen SASAC. The implementation of ST by listed companies with state-owned assets has subverted the traditional expectations of investors and significantly exacerbated the panic of funds in the ST sector.

This "ST" storm hovering over A-shares has caused some once high-capitalization companies to quickly fall from the altar. For example, *ST Meishang (300495.SZ) had a market value of more than 10 billion yuan at the beginning of its listing, and then plummeted and was suspected of fraudulent listing. Today, the market capitalization of the stock market is only 90 million yuan. The existence of such phenomena has dealt a heavy blow to the investment environment of the A-share market.

A number of ST-listed company board offices are generally of the view that companies are facing unprecedented regulatory challenges. Listed companies will pay more attention to strengthening the standardized operation of their main business and ensuring compliance to adapt to the new requirements of regulatory policies. At the same time, they are also exploring and implementing a series of proactive measures aimed at further improving the company's operational quality and management level.

The stock price of ST shares shook dramatically

On April 12, the "Several Opinions on Strengthening Supervision and Risk Prevention and Promoting the High-quality Development of the Capital Market" (i.e., the new "National Nine Articles") and the "Opinions on Strictly Implementing the Delisting System" (hereinafter referred to as the "Delisting Opinions") were released. On April 30, the Shanghai and Shenzhen Stock Exchanges revised and reissued the Stock Listing Rules, refining and revising the delisting criteria for various types.

Under the strict supervision situation, ST shares in the A-share market have encountered unprecedented panic selling.

After Huijin's shares were ST, its share price fell continuously on May 14 and 15.

On March 14, Huijin Co., Ltd. received the "Advance Notice of Administrative Punishment" issued by the Hebei Securities Regulatory Bureau, indicating that there were false records in the company's 2021 annual report. On May 10, Huijin Co., Ltd. received the "Administrative Penalty Decision", and the company's shares will be subject to other risk warnings.

A person from the securities department of Huijin shares told the Economic Observer that on April 30, the Shenzhen Stock Exchange issued the "Rules for the Review of Stock Issuance and Listing", and the new regulations were implemented immediately, and Huijin shares were implemented "other risk warnings". If Huijin shares receive the "Administrative Penalty Decision" before April 30, it may not be ST.

On May 15, Huijin said in the announcement that the company and related personnel will earnestly learn lessons, improve the internal control system, improve the level of corporate governance, improve the quality of information disclosure, strictly abide by the requirements of relevant laws and regulations, and strengthen communication with investors.

On May 12, the special information disclosed that in order to fulfill the performance commitment, Shenzhen Tefa Dongzhi Technology Co., Ltd., a subsidiary of the special information, falsely increased revenue, inflated or inflated operating costs and profits by adjusting operating costs across periods, fictitious business, etc., which led to false records in the annual reports from 2015 to 2019 disclosed by the special information. From May 14, the special information has been put on other risk warnings. From May 14th to 16th, the stock price of Tefa Information fell for 3 consecutive trading days.

This wave of ST shares fell collectively, which is related to the centralized disclosure of the 2023 annual report and the first quarter of 2024. Many companies have been put on risk alert because their performance indicators and corporate governance have touched the regulatory "red line". In particular, the regulator has imposed strong restraint measures on companies that do not meet the dividend standard, which has intensified the market's risk aversion towards ST shares.

As of May 15, 2024, there were 178 ST stocks in the A-share market. Year-to-date, 166 ST shares have declined and only 12 have gained. Among them, the stock prices of nearly 60 listed companies, including *ST Baoli (300116.SZ), *ST Meishang (300495.SZ), *ST Yuebo (300742.SZ), *ST Sansheng (300742.SZ), *ST Mall (600306.SH), and *ST Tai'an (002433.SZ), fell by more than 50%.

Wanlian Securities Investment Consultant Qu Fang said that there are three main reasons for the collapse of ST shares: first, because of financial fraud or major problems in the company's operation and facing delisting, the probability of the stock returning to A-shares in the later stage is low, and at the same time, it will lose liquidity on the third board, so there will be a sharp depreciation; Second, because the stock price is below 1 yuan for a long time, etc., may trigger the forced delisting of trading classes, although there is still an opportunity to return to A-shares in the future, such ST shares will also depreciate due to the loss of liquidity in the medium term; Third, dozens of listed companies have been put on "other risk warnings", reflecting the regulator's determination to speed up the survival of the fittest in the market, hoping to improve the overall quality of the market through short-term consolidation.

A senior brokerage analyst said that although the implementation of ST in stocks is not directly equivalent to delisting, the regulator's severe crackdown on financial fraud and other violations undoubtedly sends a clear signal to the market: even companies with state-owned backgrounds must strictly abide by market rules and laws and regulations. This has prompted investors to adopt a more prudent investment strategy when facing ST shares.

Many companies "save themselves"

Some ST companies facing the risk of delisting have adopted a series of self-rescue measures in order to stabilize stock prices, restore investor confidence, and seek a turnaround in the face of adversity.

After the stock price appeared 7 down limits, Shenzhen Zhengtong Electronics Co., Ltd. (002197. SZ, hereinafter referred to as "ST Securities") executives "couldn't sit still" and announced a plan to increase their shareholdings.

On May 14, ST Securities disclosed that three senior executives including Yang Yiren, director and vice president, plan to increase their holdings of the company's shares through centralized bidding in the secondary market with their own funds or self-raised funds within 6 months from May 15, 2024, with a total increase of not less than 2 million yuan.

Prior to this, the company was issued a negative opinion of the "Internal Control Audit Report" by Zhongqin Wanxin Certified Public Accountants (Special General Partnership), and was subject to "other risk warnings" on May 6. From May 6 to May 14, the stock price of ST Securities suffered 7 consecutive falling limits.

A person from the office of the board of directors of ST Securities Communications told the Economic Observer that the increase in the stake of senior executives is to maintain the stability of the capital market and boost investor confidence.

Despite this, on May 15, ST Securities still fell to the limit; The decline slowed down on May 16, with the stock price falling 1.99% throughout the day.

On May 6, Qinghai Spring (600381. SH) stock abbreviation was changed to "ST Spring", and its stock price fell in response. On the same day, ST Spring disclosed that it planned to use its own funds of no less than RMB 30 million (inclusive) and no more than RMB 50 million (inclusive) to repurchase the company's shares by centralized bidding to maintain the company's value and shareholders' rights. However, the stock still maintained a five-day decline limit before it stopped falling and stabilized.

In addition to increasing or repurchasing shares, some ST listed companies plan to save themselves through restructuring and other means, hoping to get rid of financial and operational difficulties.

On May 7, *ST Dongyuan (002310.SZ) received the Notice on Applying to the Court for the Reorganization and Pre-reorganization of Oriental Garden from the creditor Beijing Chaoyang State-owned Capital Operation and Management Co., Ltd. and the Notice from the court, indicating that the reorganization procedure had been initiated. At the end of 2023, *ST East Park's net assets were negative, triggering a delisting risk warning, and a net loss for 3 consecutive years, while there was uncertainty about the ability to continue operations, which once again triggered other risk warnings.

After the announcement of the reorganization, from May 7 to May 16, ST East Park's share price rose by more than 45%.

The above-mentioned senior brokerage analysts said that in the context of ST listed companies actively taking self-help measures, some investors began to look for potential investment opportunities in ST listed companies, hoping to capture undervalued stocks.

The analyst believes that the risk of stock price volatility faced by ST shares cannot be ignored. Such companies are often associated with higher levels of uncertainty and risk, including financial distress, operational issues, regulatory scrutiny, etc. Therefore, even if there is a stimulus for self-help measures, the rebound in its stock price may be accompanied by large fluctuations.

The pressure on the ST plate to clear increases

The implementation of the new delisting rules has also accelerated the process of clearing the A-share market. Low-quality listed companies will be phased out, and some ST listed companies have sounded the "delisting alarm".

On May 16, 2024, *ST Baoli (300116.SZ) announced that the closing price of the stock was lower than 1 yuan for 20 consecutive trading days, which has touched the situation of compulsory delisting of trading, and will be terminated from listing and trading by the Shenzhen Stock Exchange.

On May 15, *ST Shimao (600823.SH) disclosed that the daily closing price of the company's shares for 20 consecutive trading days was lower than 1 yuan, hitting the trading delisting index, and the stock was suspended from the next day. On the same day, it received a prior notice from the Shanghai Stock Exchange that it intended to terminate the listing of the company's shares.

On May 13, ST Zhongnan (000961.SZ) disclosed that it had received a prior notice of termination of listing: because the closing price of ST Zhongnan was lower than 1 yuan for 20 consecutive trading days from April 3 to May 8, touching the termination of the listing of the stock, it planned to be terminated by the exchange.

On May 9, *ST Meishang disclosed that it would be forced to delist from the exchange because the closing price of the stock was less than 1 yuan for 20 consecutive trading days from April 8 to May 8. *ST Meishang's share price was finally fixed at 0.13 yuan, with a total market value of less than 90 million yuan.

Since its listing in 2015, *ST Meishang's share price has reached a maximum of 153 yuan, with a total market value of more than 10 billion yuan, but now it has come to the step of delisting. Companies like *ST Meishang are not alone in the A-share market.

Liu Jipeng, former dean of the Business School of China University of Political Science and Law, severely criticized *ST Meishang's financial fraud at the "2024 China Investment Annual Conference". He not only questioned the company's ethics in the market, but also questioned *ST Meishang's sponsors.

The A-share market is clearing at an accelerated pace.

On April 16, 2024, the China Securities Regulatory Commission (CSRC) said in response to reporters' questions on dividends and delisting that based on the data from 2020 to 2022, the Shanghai and Shenzhen stock exchanges may touch more than 80 companies whose dividends do not meet the standard.

Through the statistical analysis of the 2023 annual reports of listed companies, Guosheng Securities found that after screening, the dividends of more than 100 listed companies temporarily did not meet the standard. These companies urgently need to increase their dividend payouts and improve shareholder returns in 2024. Otherwise, risk warnings may be imposed after the new regulations are implemented.

On May 15, the China Securities Regulatory Commission (CSRC) released a summary of the enforcement situation in 2023 and announced the focus of enforcement work in 2024. The summary shows that in 2023, 32 of the listed companies investigated and dealt with by the CSRC have been forcibly delisted, and 42 listed companies have been transferred to the public security organs for related suspected crimes. The China Securities Regulatory Commission said that in 2024, it will focus on cracking down on illegal activities including fraudulent issuance, financial fraud, appropriation of guarantees, and illegal shareholding reduction, while maintaining a high-pressure posture against market manipulation, insider trading and other behaviors that disrupt market order.

Wu Qing, chairman of the China Securities Regulatory Commission, said at the 2024 "5.15 National Investor Protection Publicity Day" event that he would further promote the improvement of the quality of listed companies. Listed companies are the foundation of the market and the source of investment value. From the "entrance" of listed companies to continuous supervision and then to the "export", more stringent institutional arrangements are being established. The purpose is to resolutely keep counterfeiters out, implement the requirements of openness and transparency in the whole process of corporate information disclosure, integrate the concept of respecting investors and rewarding investors into various mechanisms of corporate governance, and resolutely remove "zombie enterprises" and black sheep from the market. As the "key minority", the controlling shareholders, actual controllers, and directors, supervisors and senior executives must stand up to the front and shoulder their responsibilities.

In the long run, Qu Fang believes that there will be the following phenomena in A-shares: first, listed companies with poor quality are gradually marginalized by the market, and high-quality listed companies are more likely to be favored by funds; Second, under the premise of strengthening supervision, the overall quality of the market will be improved; Third, the regulator's supervision and punishment of illegal acts will optimize the market environment and enhance investor confidence. However, it should be noted that strengthening supervision is a long-term behavior, and only on the premise of ensuring the fairness and justice of the market can the long-term healthy development of the market be ensured.

Shenwan Hongyuan believes that policies such as the new rules for delisting focus on improving the overall quality of existing listed companies, and increase the efforts to clear "zombie shells" and "black sheep" through strict delisting standards, so as to reduce the "shell value"; At the same time, we will broaden diversified exit channels and strengthen investor protection for delisted companies. The Shanghai and Shenzhen Stock Exchanges have simultaneously improved and optimized the delisting criteria to promote a more accurate realization of "all withdrawals that should be withdrawn".

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