China Exchanges Propose New Delisting Rules - Wall Street Journal

SHANGHAIâ€"China's stock exchanges in Shanghai and Shenzhen on Sunday each released proposed new rules aimed at improving the process for delisting poor performers from the exchanges.

Few companies in China have had their listing status revoked since the country's securities regulator issued delisting rules in 2001, and analysts say the process for delisting has been ambiguous and underdeveloped.

Analysts have said a lack of strong punitive measures has contributed to poor average quality of domestically listed firms and irregularities such as the dumping of bad assets through back-door stock-market listings.

The draft rules come just after China's securities regulator on Saturday released guidelines on reforming the country's initial-public-offering system, in a bid to curb what some see as overly high pricing of IPOs that has been blamed as weighing on the market's performance.

The Shenzhen bourse, meanwhile, said on April 20 that new delisting rules on the ChiNext board for start-up firms will take effect May 1.

Both the Shanghai and Shenzhen stock exchanges said in statements that they plan to introduce eight new criteria for removing companies from their main boards. Under the new criteria, companies listed on the main boards whose net assets are negative for the latest two consecutive years and companies whose operating revenue is lower than 10 million yuan ($1.59 million) for four consecutive years will be delisted.

Among new requirements for market performance, companies on the main boards whose accumulated turnover is lower than five million shares over the previous 120 consecutive trading sessions will be delisted.

The Shanghai bourse said companies whose share prices have been lower than their par value for 30 consecutive sessions will be delisted, while the Shenzhen bourse's requirement is for 20 consecutive sessions.

The market-trading-related criteria won't be applied to firms that issued only foreign-currency-denominated B shares, the two exchanges said.

For Shenzhen's small- to medium-size-enterprise board, the bourse said it will add four new criteria for delisting. A company whose annual revenue is lower than 10 million yuan for four consecutive years will be delisted, and firms whose net assets are negative for two consecutive years will be delisted, shorter than the previous two-and-a-half years.

The bourses said they are soliciting public opinion on their drafts until May 20.

Analysts said the move is likely to hurt underperforming stocks but could be a long-term positive for the overall market.

"We would pay more attention to positive effects of the reform as it may encourage investors to shift to investment in blue-chip stocks from speculation on underperforming stocks," said Jiang Shiqing, an analyst with Industrial Securities.

Alongside the main boards in Shanghai and Shenzhen, China established a start-up board for smaller, high-tech firms in 2009 after launching a small- and medium-size-enterprise board in 2004.

On Saturday, the China Securities Regulatory Commission said it will strengthen information disclosure on IPOs and improve the pricing procedures. The regulator said it will disclose the preliminary prospectus from an issuer earlier, offering more time for the public to evaluate the IPO.

The regulator said it will expand the scope of investors that take part in the inquiry on new offerings by allowing the underwriter to recommend five to ten individual investors to engage in the process. At present, only institutional investors, including fund managers, brokerages and trust investment companies, are involved in the process.

â€"Amy Li