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Recently, due to high asset-liability ratio and tight cash flow, some listed companies have incurred overdue debts and litigation disputes, which seriously hampers the companies’ production and operations. SZSE, highly values this issue and takes prompt actions by adopting a supervision portfolio which integrates “Talk, Inquiry on Annual Report and Regulatory Cooperation”. In so doing, SZSE is to urge the interested companies to take effective measures to eliminate their debt default risks and fully disclose related information, so that it will let investors see the real listed companies.
Focus Talks to Make Sure Fulfillment of Responsibilities
The asset-liability ratio is an important indicator for examining the financial status of a listed company. Excessive liability ratio will increase the risk of non-going concern. When there is a problem with cash flow, it will trigger capital chain rupture, then followed by a financial crisis. In order to further enhance listed units’ awareness on the seriousness of debt problems and the urgency of resolving debt issues in a timely manner and push them to properly eliminate the risks of debt defaults as soon as possible, SZSE has recently implemented Focus Talks to those listed companies with an asset-liability ratio over 100% by the end of Q1. The board chairman, general manager, CFO, and board secretary of each company all joined the Focus Talks. During the talks, SZSE paid close attention to issues such as the companies’ debt overdue status, litigation progress, risks of bankruptcy and reorganization, and feasibility of resolving measures to eliminate the risks. SZSE demanded a detailed explanation of the companies’ debt situations, the disposal concepts to debt defaults and the impact of high debts on the companies’ production, profitability, and standard operations. Meanwhile, SZSE reminded that the directors, supervisors and senior managers of these companies should fulfill their duties diligently, conscientiously perform their information disclosure obligations, continuously disclose the measures and progress taken to eliminate the risks of debt defaults and fully warn about the potential risks. In an effort to enhance the talk efficiency, strengthen the supervision effects and save costs for the listed companies, SZSE adopted a video-aided new way of Focus Talk when carrying out talks with two of these listed companies along with the local securities regulation bureaus. This new model can offer a timely understanding of the impacts and consequences of high-liability operations and has gained good results.
Strengthening Annual Report Review to Focus on the “Three Highs” of Debts
Annual report review is a centralized and comprehensive examination on the listed companies’ financial status, operating capability and standard operations. By analyzing the annual financial data of listed companies in 2017, SZSE has found that the “Three Highs” of Debts (i.e. high asset-liability ratio, high financial costs and high contingent liabilities) are outstanding in some companies. In such cases, the companies would be inclined to have production and business difficulties, lower profitability and non-standard operations. However, in their annual reports, they are light on the existing high-debt risks and problems. Some companies’ business plans set unreasonable targets and do not focus on top priorities, which harms investors’ knowing of the real situations of these companies.
In order to effectively safeguard the stable operation of the capital market and protect the legitimate rights and interests of investors, SZSE has paid more attention to highlight the risks during annual report review. For the aforementioned high-debt-risk companies, SZSE adopts the “multiple reviews on annual reports and exposure through letters of inquiry” model to openly inquire about the companies’ various risks in a comprehensive and multi-dimension manner. SZSE also has required the companies to fully disclose their real situations and reminded investors of prudent decision-making. Meanwhile, SZSE has made it clear to these companies that SZSE strictly and comprehensively exercises its supervision role, require them to earnestly improve their operations and management, optimize their financial structures, enhance their profitability so as to rise above production and business difficulties. Their statements shall not be falsified by financial frauds, abnormal transactions, hidden debts and other rule-breaking means to show inflated profits.
Deepening On-Site Inspections to Exert the Advantage of Joint Supervision
All along, SZSE has actively given play to the advantage of being close to the market and quick response. It has effectively fulfilled its front-line regulatory responsibilities, continuously deepened its regulatory cooperation with the local securities regulatory bureaus, and made every effort to promote the institutionalization and normalization of joint supervision. Combining the daily painstaking supervision and the in-depth inquiry about annual reports, in the case of major problems or violations found in high-debt-risk companies, SZSE will promptly ask the local regulatory bureaus to pay attention or investigate. For illegal or rule-breaking behaviors verified by the local regulatory bureaus, relevant disciplinary punishment measures will be immediately initiated.
In addition, in order to further exert the advantage of joint supervision, SZSE has actively participated in the on-site inspection of local regulatory bureaus. For example, a company disclosed its 2017 annual report and applied to withdraw delisting warning for its stocks. SZSE focused on the company’s debt exemption, debt restructuring, and lack-of-provisions for certain asset impairment, and asked the local regulatory bureau to pay attention. To verify the above issues, SZSE had its supervision personnel participate in the special site inspection along with the local bureau. Through cooperation, SZSE and the bureau finished the inspection, knew about the real situation and got first-hand information of the key debt issues. Then, a sound and reasonable judgment was made on whether to approve its application.
SZSE will fully implement the spirit of the 19th CPC National Congress, the Central Economic Work Conference and the National Financial Work Conference so as to ensure risk prevention, control, warning and disposal. Meanwhile, SZSE will adopt timely, comprehensive and effective supervision measures to hold fast to the bottom line of no systemic financial risks, effectively protect the legitimate rights and interests of investors, and ensure the sustained, healthy and stable development of the multi-tiered capital market.
