.jpg)
Tasked with "serving the real economy, preventing financial risks, and deepening financial reform" in 2017, the Shenzhen Stock Exchange (SZSE) upheld the principle of strict supervision in accordance with law, strict quality control on information disclosure of M&A and reorganization and to serve the real economy, accelerate industrial restructuring and facilitate smooth transitioning of old and new growth engines.
Echoing the Call for Focusing on Serving the Real Economy
In 2017, The SZSE saw a suspension of trading of 353 companies because of major asset restructuring plans, down by 14.1% year-on-year; 217 major asset restructuring plans were disclosed, a decrease of 33.6% compared with last year, involving a transaction amount of RMB 472.67 billion, 54.5% less than the same period last year. The number of projects completed including M&A plan in 2017 totaled 186, down by 14.3% over the same period of last year, with a total value of 652.82 billion yuan, up by 45.8% year-on-year. Although the number of M&A cases fell, the quality of restructuring was significantly improved, shifting from high-speed to high-quality growth, characterized by the following features:
Industry factor dominates the direction of M&A, driving companies to focus on their main businesses. Of the 217 restructuring projects disclosed in Shenzhen Market in 2017, the proportion of industrial consolidation projects accounted for 59%, representing a year-on-year increase of 4%. A batch of enterprises expanded their business through M&A and optimizes resource allocation to improve market competitiveness and profitability.
The rate of asset appraisal appreciation dropped significantly, with market gradually returning to rational. In 2017, the average appreciation rate of appraisal value of acquired or merged targets after eliminating outliers in the SZSE was 586%, representing a year-on-year percentage decreased of 30%. Overall valuation of the reorganized targets was reduced and listed companies refrained from blind reorganization and returned to normal.
The tide of restructuring and listing faded, and the volume of matching funds raised dropped significantly. Due to new rules on reorganization and refinancing, only 4 listed companies in the SZSE disclosed restructuring plans in 2017, down by 56% over last year. The amount of the proposed matching funds to be raised in 2017 totaled 77.58 billion yuan, plummeted by 76% compared with last year.
Help state-owned enterprises (SOEs) deepen reforms and serve national strategies. Listed SOEs leveraged on the capital market to adjust industrial distribution, consolidate resources to promote the implementation of national policy. The SZSE has successively completed the M&A of China Merchants Shekou and China Merchants Road to help China Merchants Group consolidate its business sectors. It has become an exemplary model for state-owned enterprises to tap on capital market and implement national policy.
A Multi-Pronged Approach to Fight Illegal M&A Cases
The SZSE held 136 meetings to review 230 information disclosure documents on reorganization and issued over 250 reorganization inquiries. The SZSE asked China Securities Regulatory Commission (CSRC) for any issues that might exist in the 37 reorganization proposals, of which 16 were terminated. In 2017, the SZSE continued to strengthen supervision in the following aspects:
Strictly examine any plans that are suspected to evade restructuring, to curb regulatory arbitrage. Since the implementation of the new regulation on reorganization, although there were less restructuring listings, there still existed cases where companies seek to evade reorganization and listing through third-party transactions, attack to dilute the subject equity and authorization of voting rights. For such scheme, the SZSE would, as always, show no mercy and dig into the controlling shareholder of listed companies and its main business stability as well as their transaction capital sources. Only in this way can the SZSE guarantee legality of information disclosure right from the beginning.
Keep a watchful eye on abnormal reorganization plan, to protect the rights and interests of medium and small investors. In view of the chaos phenomenon such as "cross-sector acquisition" and "clear-shell acquisition" reorganization in the market, the SZSE timely adapted to the new situation, moved forward supervision frontline, proactively undertook the responsibility, closely tracked down the authenticity of the performance of underlying assets of cross-border acquisitions, and intensified the requirement on information disclosure regarding contents such as performance authenticity, sustained profitability, valuation rationality in the reorganization plans. Meanwhile, listed companies were at risk of becoming an "empty shell" as the problem of “clear-shell" reorganization became gradually manifested since 2017. In view of such phenomenon, the SZSE promptly responded, with full inquiry and close attention to the compliance of the scheme.
Strictly control the restructuring trading suspension time, to eliminate tricking trading suspension in the name of restructuring. Since 2017, some of the public companies have long suspended trading in the name of planning major asset reorganization to avoid the risk of market decline. In response to the above phenomenon, the SZSE requires listed companies to provide adequate and effective proof in application for trading suspension, and strictly control the suspension time to prevent the tricking suspension in the name of restructuring.
Closely track down the "three highs" issue of reorganization, and strengthen the follow-up supervision. In the reorganization examination stage, the SZSE made full use of the means of inquiry and strengthened the information disclosure. Under the high-pressure regulatory situation, the valuation of the reorganization plan dropped significantly in 2017. During the performance commitment period after the completion of the reorganization, the SZSE remains highly sensitive to such anomalies as fluctuations in the performance of the underlying assets or the accurate achievement of performance standards, and effectively utilizes the open information on the internet and the financial data of the same industry to explore clues.
In the supervision of reorganization in 2017, the SZSE also utilized multi-means and multi-dimensional supervision mode, closely cooperated with the CSRC Inspection Bureau and the local securities regulatory bureau, strengthens the supervision on the intermediary agencies, urge the intermediaries to take full responsibility, strictly regulated and purified the market environment of reorganization and protected the rights and interests of investors.
As 2018 is the first year to thoroughly implement the spirit of the 19th CPC National Congress, The SZSE will continue to adhere to the general tone of seeking progress while maintaining stability, continue to take serving supply-side structural reform as the main line and effectively strengthen the supervision over M&A and reorganization so as to enhance the capital market’s ability in serving the real economy, continue to grasp new opportunities and make new achievements.
