.jpg)
M&A and restructuring are important instruments of the capital market to optimize resource allocation and serve high-quality development of the real economy. In 2020, SZSE actively practiced the principles of “system building, non-intervention, and zero tolerance” and followed the working requirements of China Securities Regulatory Commission (CSRC) of “standing in awe of the market, rule of law, professionalism and risks and pooling the efforts of all sides to develop the capital market”. SZSE gave full play to the role of M&A and restructuring as the main channel and deeply engaged in regulatory services that cover the whole chain of M&A and restructuring. In addition, it continued to optimize market functions and energize market entities, and effectively supported listed companies in accelerating transformation and upgrading, forestalling risks and addressing challenges and achieving high-quality development.
Introducing financial resources, strengthening companies’ capabilities, and promoting high-quality development
Acquisitions of listed companies supported technological innovation and assisted in the bailout of enterprises. In 2020, there were 665 acquisitions completed in the Shenzhen market, up 10% year on year, with the transaction amount of CNY 301.1 billion, up 5% year on year. Under the positive impact of the new refinancing policy, the number and transaction amount of acquisitions made by listed companies via the issuance of new shares reached 129 and CNY 74.6 billion. Listed companies in emerging industries such as computer communications, software and information services, pharmaceuticals, high-end equipment manufacturing and new materials were favored by the market, accounting for forty percent. 27 private enterprises brought in state-owned capital through equity transfer, change of control and other means. Through comprehensive measures such as cash transfer by de facto controller, credit support, injection of quality assets, the enterprises’ fundamentals were effectively improved, achieving good results in the bailout efforts. For example, after receiving state-owned capital, companies in environmental protection industry such as CECM (300385), BOW (300070) and CECEPGZ (300388) got out of business predicament and saw their sustained profitability improved.
Major assets restructuring focused on main business and facilitated transformation and upgrading of enterprises. In 2020, there were 78 major assets restructurings implemented in the Shenzhen market, with a transaction amount of CNY 348.3 billion (excluding matching fundraising), including five listings via restructuring. In terms of transaction type, industry integration-based restructurings accounted for over 60 percent for 3 years on end. It has become a market consensus to focus on the development of main business and to get back to M&A. Transactions of clearance sale of assets and asset swap totaled 21, accounting for 27% in the Shenzhen market, and the proportion rose by nearly 25% from 2019. The transactions played an important role in defusing enterprises’ operational risk, improving the mechanism for the survival of the fittest and realizing replacement of old growth drivers with new ones. In terms of payment method, restructurings paid with cash totaled 29, accounting for 37%, an increase of 16% from 2019. Private placement of convertible bonds became useful supplement to the instruments of payment for restructurings and it was adopted to pay consideration for 9 cases of restructurings, accounting for over ten percent. In terms of valuation of targets, speculations in shell companies and small-cap and under performing companies were reduced significantly. The average appreciation rate of assets was 243%. Even though valuation remained in a relatively reasonable range, there was an alarming increase in the restructurings of “high-valuation, high-premium, high-commitment”.
The ChiNext Board-listed companies disclosed 45 major assets restructurings, accounting for 40% of the total restructurings on the Shenzhen market, 19% higher than that in 2019, indicating significant improvement in the transaction activity. In particular, sixty percent of the restructuring targets are in strategic emerging industries such as information technology, high-end equipment manufacturing and new materials, highlighting the ChiNext Board’s positioning of a listing platform for enterprises of innovation, originality and creativity, and conventional industries integrated with new technology, new industry, new business form, and new model.
Assisting in reforms, unlocking market vitality, and highlighting the main line of “system building”
In 2020, using the implementation of the new Securities Law as an opportunity, SZSE steadily advanced the ChiNext Board reform and registration-based IPO system, formulated and refined basic regulations in key fields, facilitated the M&A and restructuring reform, and energized market entities.
SZSE highlighted the main line of “system building” and ensured steady implementation of reforms. First, SZSE implemented the new Securities Law in all respects, effectively carried out follow-up regulation on cancellation of the approval of tender offer obligation exemption, and optimized and refined the information disclosure review mechanism in a timely manner. In 2020, SZSE completed review of 30 applications for information disclosure concerning exemption of tender offer obligation, achieving a smooth stable transition. Second, SZSE formulated and released the rules for restructurings on the ChiNext Board and Q&As, promoting the building of an open, transparent system of rules. Third, it refined the internal review procedures for M&A and restructurings, strengthened personnel training, and actively gave play to the joint review advantage of the review department and the day-to-day regulatory department. Fourth, SZSE strictly controlled risks in clean administration, while promoting the development of an integrity oversight system.
In implementing the ChiNext Board reform and registration-based IPO system, SZSE took into account the realities of existing companies, and conducted M&A and restructuring wile implementing the registration-based IPO system. Regarding the pricing mechanism, SZSE reduced the floor price for share assurance in asset purchase by issuing shares from 90% of the market reference price to 80%, providing a more flexible benefit game mechanism for the counterparts of the restructuring. After the registration-based IPO system was implemented, SZSE handled 16 restructuring applications from ChiNext Board-listed companies. In nine of those applications, SZSE changed the floor price for share issuance to 80% of the market reference price, further expanding the reach of the benefits of the reform.
SZSE improved the efficiency and transparency of review and unlocked market vitality. In the M&A and restructuring registration system of the ChiNext Board, SZSE reduced the review time, optimized the review procedures, and specified that the review time for asset purchase by issuing shares is 45 days and that for listing via restructuring is three months. Regarding applications for M&A and restructuring that meet the speedy micro financing criteria, SZSE cut the inquiry procedure after accepting the application and directly issued a review report. The whole process of the restructuring of Easpring (300073) takes only 31 working days from application to registration. In the meantime, all review processes and review materials were published on the official website of SZSE, to further increase the transparency of review. The improvement in the efficiency and transparency of review has enhanced market participants’ sense of gain from the reform and assisted enterprises in getting on the fast track of industrial development.
Focusing on key areas, improving services, and deepening measures to delegate power, improve regulation, and upgrade services
SZSE has always been adhering to providing services through regulation, constantly improving services, and supporting listed companies in making good and full use of market instruments such as M&A and restructuring. SZSE has assisted enterprises in pandemic prevention and control, serving the reform of state-owned enterprises (SOEs), energized private enterprises, and promoted high-quality development of listed companies.
First, SZSE took practical measures to support listed companies fighting the pandemic. SZSE learned about enterprises’ difficulties and defused the impact of the pandemic in a timely manner. We effectively implemented such positive measures as properly extending the period of validity of financial materials concerning restructuring and the deadline of issuing a shareholders’ general meeting notice after a restructuring plan is disclosed. We supported smooth implementation of restructurings and major transactions of New Hope Diary (002946), CECM (300385), *ST INFOTMIC (000670), etc. SZSE did a good job in the oversight of M&A and restructuring performance commitment fulfillment of the listed companies affected by the pandemic, continued to provide “remote training” on M&A and restructuring, and offered “door-to-door services” to regions hit hard by the pandemic such as Hubei, sending out regulatory warm and fully supporting resumption of work and production.
Second, SZSE served the supply-side structural reform and assisted in the reforms of state-owned capital and SOEs. 2020 is the opening year of the Three-year Action Plan of the Reform of State-owned Enterprises. 67 SZSE-listed SOEs disclosed changes in control, indicating that the mixed ownership reform was further deepened and the layout of state-owned capital was further optimized. In 2020, 23 major assets restructurings were implemented, with a transaction amount of CNY 243.7 billion. In those transactions, some implemented restructuring and transformation to relieve production and operation pressure, and some made strategic M&A to deepen the supply-side structural reform. Approving CRM (000927) to get listed through *ST TJFaw, SZSE assisted the company in implementing transformation and making a profit instead of suffering a loss. CNBM planned to inject several cement assets into TSC (000877) to realize holistic listing, promoting deep integration of the cement industry.
Third, SZSE energized private enterprises and small and medium-sized enterprises (SMEs). In 2020, a total of 55 private enterprises on the Shenzhen stock market implemented major assets restructuring, with a transaction amount of CNY 104.6 billion, and 338 private enterprises optimized their equity structures by introducing strategic investment, changing control, etc., further stimulating their development. For example, Tianshan Aluminum (002532), through back-door listing via Shimge (002532), transformed into a leading integrated aluminum manufacturer in China, with a transaction amount of CNY 17 billion, the largest restructuring-for-listing transaction on the A-share market in 2020.
Fourth, SZSE advanced regular practice of the pilot project of private placement convertible bonds. Since the first private placement convertible bond product on the market was launched in December 2019, SZSE has continuously advanced the pilot project of private placement convertible bonds and the electronification of business procedures, standardized the development of private placement convertible bonds, and provided more convenient and efficient services to listed companies. In 2020, nine SZSE-listed companies including TCL Tech. (000100) and CCHN (000661) issued private placement convertible bonds as an instrument of payment for restructuring, with an issue volume of CNY 1.4 billion, a significant increase in both the issue quantity and the volume. Over half of the companies issued private placement convertible bonds simultaneously to raise supporting funds, and obtained a total financing amount of CNY 4.1 billion, further expanding direct financing channels.
Fulfilling duties, preventing risks, and strictly implementing the principle of zero tolerance
In 2020, aiming to improve regulatory efficiency, SZSE earnestly performed the frontline regulatory duties, leveraged the advantage in technology-based regulation, strengthened whole-process prudent regulation, and continued to intensify oversight of abnormal M&As and restructurings.
On the one hand, SZSE focused on matters before information disclosure and strengthened inquiry. In 2020, SZSE issued a total of 123 inquiry letters on restructuring, strengthened in-process regulatory inquiry, and got to the bottom of such abnormalities as “high-valuation, high-premium and high-commitment” transactions, hoodwinked restructurings, avoidance of restructurings for listing, etc. We sent more than two inquiry letters for 22 high-risk restructuring proposals. SZSE optimized and rebuilt the enterprise portrait-based restructuring review module and made full use of technological regulatory means to improve the quality and efficiency of review. We added the discussion and review procedures of reply letters on restructuring, combined various measures such as talk, reporting and coordination with local regulatory offices, and strictly controlled high-risk restructuring proposals to effectively guard the market access. After SZSE inquired relevant companies on their programs due to problems in the reasonableness of valuation of restructuring targets, truthfulness of performance data, etc., the companies withdrew their application materials or terminate their restructuring plans on their own initiative.
On the other hand, SZSE focused on the final stage of continuous regulation and cracked down on violations. In daily regulation and annual report review, SZSE focused on subsequent integration and commitment fulfillment after restructuring, and strengthened continuous regulation of goodwill impairments, perfect fulfillment of performance commitments, fulfillment of performance compensation, etc., to improve the effect of M&A, restructuring and integration. In the meantime, We refined the punishment standard for violations concerning restructuring performance commitments, further defined the responsibilities of intermediaries, and punished violations concerning restructuring strictly and fast. Regarding companies who used favorable restructuring news to hype up stock prices or collude with shareholders to reduce shareholding, SZSE promptly reported them to file a case, sought for clues and gave them disciplinary punishment. We imposed disciplinary punishment on 23 cases that refused to fulfill performance commitments after restructuring, and imposed disciplinary punishment or self-disciplinary regulatory measures on six responsible persons of intermediaries who failed to fully perform their duties.
Next, SZSE will continue to implement in depth the guiding principles of the Fifth Plenary Session of the 19th CPC Central Committee and the Central Economic Working Conference, follow the working plans of CSRC, and stick to the market- and rule-law-based direction. We will continue to implement regulation and provide services simultaneously, refine institutional supply, optimize the review mechanism, and strengthen continuous regulation. We will provide “one-stop” services in system building, policy consulting, plan implementation, training & communication and technical support, and give full play to our functions and roles in M&A and restructuring, to improve the quality of listed companies. we will support transformation and upgrading of the industrial structure, better serve national strategies, and assist in the high-standard circulation of technology, capital and the real economy.
