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On 15 March 2021, Shenzhen Stock Exchange (SZSE) issued a prior notice of delisting to Kangdexin Composite Material Group (*ST KDX or the Company). SZSE spokesperson answered reporters’ questions on the relevant arrangements for *ST KDX’s triggering two delisting circumstances at the same time.
I. How will the standards for compulsory delisting of *ST KDX due to its major violations of law be enforced?
Answer: On 31 December 2020, in order to implement the requirements of the Central Commission for Comprehensively Deepening Reform on the reform of delisting regulations and the new Securities Law, and build a delisting system that matches the concept of registration-based IPO system, SZSE issued new rules on delisting and relevant transitional arrangements. Specifically, Article 5 of the Notice on Amendments to the Rules Governing Share Listing on SZSE (2020 Revision) (the Notice) stipulates that for companies that receive a decision for administrative penalty before the implementation of the new regulations and may trigger compulsory delisting due to major violations of law, according to the Implementation Measures for Compulsory Delisting of Listed Companies Due to Major Violations of Law (the Implementation Measures) and the Rules Governing Share Listing on SZSE (Revised in November 2018), compulsory delisting and delisting arrangement period will be implemented.
*ST KDX received the decision for administrative penalty from the CSRC on 27 September 2020. According to the Notice, the above-mentioned rules still apply to the compulsory delisting standards for major violations of law. According to the decision for administrative penalty, on 28 February 2021, *ST KDX corrected and disclosed the previous accounting errors in accordance with the relevant provisions of the Accounting Standards for Business Enterprises No. 28 – Changes of Accounting Policies and Accounting Estimates and Error Correction and the Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 19 – Correction of Financial Information and Relevant Disclosure. Relevant announcements show that, after retroactive restatement, the net profits of *ST KDX from 2015 to 2018 were -CNY 1,481 million, -CNY 1,755 million, -CNY 2.46 billion and -CNY 2,357 million respectively, being negative for four consecutive years. Its stocks have triggered the situation of compulsory delisting due to major violations of law as set forth in Paragraph 3 of Article 4 of the Implementation Measures: there are false records, misleading statements or major omissions in the annual report disclosed by a listed company, and according to the fact determined by the decision for administrative penalty issued by the CSRC, the financial indicators of the listed company in consecutive fiscal years have actually met the delisting standards stipulated in the Rules Governing Share Listing on SZSE.
II. How will the standards for compulsory delisting of *ST KDX due to financial reasons be enforced?
Answer: According to Article I of the Notice, companies whose shares have been suspended from listing before the implementation of the new rules will be subject to the relevant arrangements of the Rules Governing Share Listing on SZSE (Revised in November 2018) for resumption of listing, delisting and delisting arrangement period.
Disclaimers of opinion were able to be expressed for the financial reports of *ST KDX in two consecutive years, as a result of which its stocks were suspended from listing since 10 July 2020. Recently, *ST KDX disclosed its 2020 annual report, showing that the Company’s net profit in 2020, net profit after deducting non-recurring profits and losses, and net assets at the end of the period are all negative, and its financial report was issued with an audit report of qualified opinion, which triggers the situation of delisting as stipulated in Article 14.4.1 of the Rules Governing Share Listing on SZSE (Revised in November 2018).
III. *ST KDX concurrently meets two delisting standards, what delisting procedures will apply?
Answer: *ST KDX concurrently meets two delisting standards (major violations of law and financial reasons). In order to clarify market expectations, SZSE will terminate the listing of its stocks according to the procedures for the earlier of the two standards that is met. The time point for delisting of *ST KDX due to financial reasons predates that for compulsory delisting due to major violations of law. According to the relevant provisions of the Implementation Measures and the Rules Governing Share Listing on SZSE (Revised in November 2018), SZSE will start the delisting procedures for the Company’s stocks according to the standards for delisting due to financial reasons.
IV. What are the subsequent delisting processes of the Company’s stocks?
Answer: The delisting processes of a company’s stocks due to financial reasons include the following steps: first, SZSE will decide on the delisting. According to Article 14.4.4 of the Rules Governing Share Listing on SZSE (Revised in November 2018), SZSE will decide on whether to delist the Company’s stocks within 15 trading days after the disclosure of its annual report. Second, the stocks will enter the delisting transitional period. According to Article 14.4.23 of the Rules Governing Share Listing on SZSE (Revised in November 2018), the Company’s stocks will enter the delisting transitional period for 30 trading days from the next trading day after the expiration of five trading days after the decision of SZSE to delist the stocks. Third, the Company’s stocks will be delisted. According to Article 14.4.26 of the Rules Governing Share Listing on SZSE (Revised in November 2018), on the next trading day after the expiration of the delisting transitional period, SZSE will delist the Company’s stocks and complete the delisting process.
V. Will its shareholders be able to trade the stocks?
Answer: According to Article 14.4.23 of the Rules Governing Share Listing on SZSE (Revised in November 2018), the Company’s stocks will be relisted and enter the delisting transitional period from the next trading day after the expiration of five trading days after the decision of SZSE to delist the stocks. The delisting transitional period will be 30 trading days, and the daily fluctuation of stock price will be limited to 10%. On the next trading day after the expiration of the delisting transitional period, SZSE will delist the Company’s stocks, which will be transferred to the NEEQ.
According to the relevant provisions of the Interim Measures of the National Equities Exchange and Quotations System for Stock Transfers for Companies Listed on Behalf of Other Entities on STAQ and NET of the National Equities Exchange and Quotations System and Companies Exiting from the Market, shareholders of *ST KDX will register to confirm their rights with respect to the stocks after delisting, and their stocks may be publicly transferred in the exchange system.
VI. How will the legitimate rights and interests of shareholders be protected after the delisting?
Answer: After delisting of *ST KDX, its stocks will no longer be listed on the stock exchange, but the basic rights of shareholders as stipulated in the Company Law, such as the return on assets and participation in major decisions, will not change.
After delisting of *ST KDX, the Company shall, in accordance with the Company Law and other relevant provisions, provide timely reports to the shareholders on the Company’s financial position, operation, asset restructuring, equity changes and other important information. The Company can provide information to its shareholders by means of media announcement or mail communication; the notice of convening the general meeting of shareholders shall be sent by means of media announcement. After listing of *ST KDX in the NEEQ, it shall also comply with the information disclosure requirements of the NEEQ. More information can be found on the website of the NEEQ: www.neeq.com.cn.
According to the new Securities Law and the Provisions of the Supreme People’s Court on the Trial of Civil Claims Caused by False Statements in the Securities Market, listed companies and others who are obliged to disclose information should bear civil liability for damages to investors’ rights and interests caused by false statements. Therefore, investors can claim civil compensation from *ST KDX and relevant responsible persons in accordance with the law through judicial channels such as separate litigation, joint litigation, application for model judgment mechanism, or ordinary or special representative action. Investor protection institutions can also play an active role by supporting litigation and special representative action to safeguard the legitimate rights and interests of investors, especially small and medium-sized investors.
