Caixin
May 20, 2019 08:06 PM
FINANCE

Bourses Prepare to Boot Year’s First Batch of Sub-Par Companies

Chinese companies have used a variety of tricks to avoid being booted from the country's stock exchanges, such as falsifying their accounts, seeking local government intervention and taking advantage of the country’s loose stock suspension rules. Photo: VCG
Chinese companies have used a variety of tricks to avoid being booted from the country's stock exchanges, such as falsifying their accounts, seeking local government intervention and taking advantage of the country’s loose stock suspension rules. Photo: VCG

The first batch of companies to leave China's bourses in 2019 have been announced, as regulators ramp up a campaign to clean out the stock markets and raise the quality of listed companies.

The Shanghai Stock Exchange (SSE) announced Friday that Hareon Solar Technology Co. Ltd. would be kicked off the board while Shanghai Potevio Co. Ltd. had chosen to delist. The Shenzhen Stock Exchange said the same day that Chengdu Huaze Cobalt & Nickl Mtrl Co. Ltd. and Fujian Zhonghe Marketing Co. Ltd. would both be booted.

All four companies have struggled in recent years. Huaze Cobalt failed to declare an audited annual report for 2018 within the time frame required. Fujian Zhonghe has suffered long periods of negative assets and profits, and its auditors issued a disclaimer of opinion for its 2018 annual report — meaning they could not confidently assess the company’s financial state.

Hareon Solar declared negative assets and profits in 2018, and its auditors issued disclaimers of opinion for its 2016, 2017 and 2018 annual reports. Shanghai Potevio’s choice to delist came after years of losses.

Regulators have stepped up efforts to force poorly performing and fraudulent companies to leave China's bourses. The Shanghai and Shenzhen stock exchanges issued final versions of tough new mandatory delisting rules in November, which laid out expanded grounds for forced delisting, and empowered regulators to expel firms that endangered public safety.

China will kick off companies that disturb market order or otherwise meet the requirements for delisting, said Yi Huiman, China's top securities regulator, at an event held by the China Association for Public Companies on May 11. This meant clearing out “zombie” and “shell” companies, he said, referring to debt-ridden firms that run years of losses, and those which are financially valueless but can be bought by others as a cheap way to list on an exchange. Hareon Solar, for instance, went public on the SSE by buying a shell company in 2011.

China opened its stock markets in 1992 but only introduced delisting rules in 2001. As of the end of 2018, just 56 companies had been kicked off the Shanghai and Shenzhen exchanges, according to figures compiled by data provider Hithink RoyalFlush Information Network Co. Ltd. Over 3,500 firms currently trade on the two bourses.

Chinese companies have used a variety of tricks to avoid being booted, such as falsifying their accounts, seeking local government intervention and taking advantage of the country’s loose stock suspension rules to halt trading for long periods of time.

Contact reporter Ke Baili (bailike@caixin.com)

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