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On November 8, 2018, in accordance with the provisions of SZSE's Rules Governing Share Listing and the review opinions of SZSE's Listing Committee, SZSE made the decision to terminate the listing of Zhonghong Holding's shares. As a result, it became the first company to be forced to terminate its listing due to its stock price being continuously lower than the face value. SZSE resolutely implemented the entity's responsibility for the delisting and made the delisting decision according to the law, which is the respect to and protection of market players' autonomy and investors' market-oriented choices. This is also the embodiment of further improving the basic functions of capital market, enhancing the effectiveness of capital market and strengthening the rational value investment concept.
Respect the results of market-oriented choices and ensure the objectiveness and definiteness of rules and basis.
Since 2018, Zhonghong Holding has successively disclosed major risks such as large loss of performance, overdue debts and major project shutdowns. Investors expressed their judgment on its investment value through market-oriented behaviors. On August 15, 2018, the closing price of its stock was lower than the face value (CNY1) for the first time. From September 13, 2018 to October 18, 2018, the daily closing price was lower than the face value (CNY1) for 20 consecutive trading days, which is subject to the provisions of Article 14.4.1 of SZSE's Rules Governing Share Listing on listing termination. According to Article 14.4.11, Zhonghong Holding's shares would be suspended from October 19.
Before making the decision to terminate the listing, SZSE carried out the hearing procedures in accordance with the law to fully protect listed companies' right of defense. On October 23, SZSE issued an advance notice to Zhonghong Holding to inform it of the right to apply for a hearing. On the same day, it filed a hearing application. On November 6, SZSE's Listing Committee held a hearing to terminate its listing to fully listen to its on-site statements and defense opinions, and obtain more comprehensive information. Besides, the Committee clearly disclosed the facts and rules on which the delisting decision was built to ensure that the delisting review process was law-based and effectively guarantee market participants' right to participate and know. On the same day, the Committee held a working meeting to review the listing termination of Zhonghong Holding. According to the opinions of the Listing Committee, the criteria were objective, the facts clear, and the basis definite. Thus, SZSE decided to terminate the listing of Zhonghong Holding.
Perform duties according to law and fully indicate risks.
Since the outbreak of risks related to Zhonghong Holding, SZSE has fulfilled its first-line supervision duties according to law, strictly disclosed information, fully revealed risks, and earnestly safeguarded the legitimate rights and interests of small and medium-sized investors.
First was to strengthen the supervision of information disclosure. Zhonghong Holding repeatedly carried out high-ratio bonus issue and stock dividend distribution in recent years, and its asset-liability ratio kept rising. SZSE has been listing it as a key supervision object of high risks and repeatedly sent letters of attention to urge it to supplement and correct relevant announcements so as to ensure that the information disclosed was true, accurate and complete, fully protecting minority investors' right to know. On the evening of August 27, 2018, Zhonghong Holding applied for an announcement disclosure of the Debt Restructuring and Operational Trusteeship Agreement signed with JDB Group Co., Ltd. SZSE noticed that the agreement was not reviewed by the board of directors, thus it was not substantively binding, in addition to its major uncertainties such as whether it would be fulfilled. After confirming that the relevant disclosure documents were available, SZSE required Zhonghong Holding to disclose the full text of the agreement and highlight the aforementioned risks in a prominent position in the announcement to effectively protect the legitimate rights and interests of investors. On the morning of August 28, after JDB Group issued a disclaimer, SZSE immediately exercised trading halt against Zhonghong Holding and sent a letter to demand it to clarify before trading resumption so as to ensure the fairness and integrity of information disclosure and the informed investment decisions of investors based on adequate disclosure.
The second was to continuously reveal the risks of listing termination. Since the closing price of Zhonghong Holding's shares was lower than the face value for 10 consecutive trading days since the first time on August 28, 2018, SZSE continued to urge it to remind investors that its stocks might be terminated. In addition, on August 14, 2018, its Q1, semi-annual and Q3 reports of 2017 were suspected of false records and investigated by CSRC. Therefore, SZSE required it to fully reveal the delisting risk due to the above major law breaking.
The third was to launch the disciplinary process against Zhonghong Holding according to the law. During the review of Zhonghong Holding's 2017 Annual Report, it was found that the company had illegally paid CNY6.15 billion in purchases, failed to disclose its major administrative penalties in a timely manner, failed to return the due funds raised to replenish its working capital, delayed the disclosure of its revised performance forecast and other violations. As a result, after timely investigation, SZSE initiated the disciplinary procedure, and made public censure against it and related responsible persons on September 4.
Delisted companies are highly risky, and investors should be careful about buying their stocks during the delisting transitional period.
According to Article 14.4.23 of the Rules Governing Share Listing, Zhonghong Holding's stocks shall enter the delisting transitional period from November 16, 2018, with a trading period of 30 trading days, and its stock abbreviation shall be changed to "Zhonghong Delisting", and the daily stock price fluctuation shall be limited to 10%. SZSE will officially delist its stocks in the second trading day following the expiration of the delisting transitional period.
Delisting transitional period is the last chance for investors to trade the stock of a to-be-delisted company before it is delisted. This is designed to release risks. Investors should carefully read the company's announcements and the Special Provisions of Shenzhen Stock Exchange on the Business during Delisting Transitional Period and pay close attention to the investment risks of the to-be-delisted company.
Transfer by listing is still available and the company still needs to perform the obligation of information disclosure
According to relevant rules, the company shares will be landed on National Equities Exchange and Quotations ("NEEQ") for transfer by listing within the 45 trading days upon the maturity of delisting transitional period. SZSE will urge the company to fully disclose the arrangements on equity confirmation, registration and custodianship, the corporate contact information and the approach for learning the company information after the company stock is delisted so as to safeguard investors' rights and interests.
Pursuant to the Interim Measures on the Stock Transfer of STAQ & NET System companies and Delisted Companies on National Equities Exchange and Quotations, company shareholders have to re-perform the formalities of equity confirmation, registration and custodianship before having their shares transfer. Investors may visit the NEEQ website (www.neeq.com.cn) for information on how to go through the said formalities and how to transfer the shares of delisted companies.
When delisted, Zhonghong Holding is still a limited liability company and should abide by the rules of the Company Law. Also, it should continue to perform the obligations of a public company and assume its social responsibilities to ensure that the rights legally entitled to its shareholders will not alter due to the company's listing status change.
Next, SZSE will act as per the CSRC deployment to strictly perform front-line supervision duties, uphold the marketized, normalized and legalized nature of delisting systems, and utilize the market-oriented approach of survival of the fittest and orderly entry-exit to truly improve the quality of listed companies. In addition, SZSE will constantly enhance the capacity of serving the real economy and joint hands with competent departments to support listed companies in alleviate the difficulties encountered during development and give them a leg up in employing the capital market to grow and excel. SZSE will also guide market participants to put in place their duties and practically protect minority investors' rights to know and trade so as to increase market vitality and confidence.
