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The suspension of listing of Zhuhai Boyuan Investment Co., Ltd. (*ST Boyuan INV) on May 28, 2015 marked the conclusion of major delisting jobs in 2015 by the Shanghai Stock Exchange (SSE). Before this, the SSE had decided to terminate the listing of China Erzhong Group (Deyang) Heavy Industries Co., Ltd. (*ST Erzhong Heavy), with its shares delisted from the SSE on May 21, 2015.
The SSE witnesses delisting of two companies in 2015: *ST Erzhong Heavy and *ST Boyuan INV, to which it attaches great importance by setting up a delisting work group to dispose of the two companies in a steady way. The voluntary delisting of *ST Erzhong Heavy and the suspension of listing of *ST Boyuan INV due to serious violation of laws have been going smoothly. The case of *ST Erzhong Heavy will serve as a positive model for voluntary delisting of other companies, while that of *ST Boyuan INV will be conducive to cleaning the market environment and establishing market confidence.
1. Voluntary delisting of *ST Erzhong Heavy is the first practice after delisting rules reform was launched in 2014, hopefully serving as a positive model for voluntary delisting of other companies.
The large-scale centrally-administered enterprise *ST Erzhong Heavy has been in the red since 2011, the year after its listing, and it’s forecasted that compulsory delisting would be triggered after the disclosure of its annual report of 2014, to which investors and the media paid close attention. Against such backdrop, *ST Erzhong Heavy and its actual controller China National Machinery Industry Corporation (SINOMACH) had planned to get delisted voluntarily to mitigate conflicts of interests of all parties.
On April 23, 2015, a shareholders’ meeting was held by *ST Erzhong Heavy, examining and approving the “Resolution of Voluntary Termination of Listing Shares by Means of Shareholders’ Meeting” with an approval rate of 99.7% among all the shareholders present and an approval rate of 77% among minority shareholders. Thus, the company becomes the first listed company that carries out voluntary delisting after the new delisting rules were implemented in 2014.
That’s actually not the primary choice for delisting of *ST Erzhong Heavy, as SINOMACH intended to achieve voluntary delisting of the company by means of comprehensive tender offer but failed due to insufficient shares for pre-accepted offers.
During the delisting of *ST Erzhong Heavy, the SSE made great efforts in the following 4 aspects: Firstly, driving the company to disclose significant information continuingly and sufficiently in order to protect the right to know and right to make decision of investors; secondly, clarifying policies to instruct the company to enhance protection of investors; thirdly, providing strong support for the company in the aspects of policy consultation and technical support; fourthly, following up and analyzing the public opinion and having the company respond to investors’ appeals in time.
As the first practice of delisting after delisting rules reform in 2014, the voluntary delisting of *ST Erzhong Heavy will serve as a model for delisting of other companies in the securities market from three aspects: Firstly, the anticipated objective of the reform has been fulfilled. Delisting of *ST Erzhong Heavy indicated that the market-oriented reform of delisting rules was on the right track and in line with the interests of all market participants. Secondly, a delisting sample based on the principle of company autonomy has been established. During the voluntary delisting of *ST Erzhong Heavy, shareholders took an active part in the event and uttered their opinions in reasonable ways, fully implementing the principle of company autonomy. Thirdly, a solution to tackling difficulties in delisting and achieving normalization of delisting has been provided. In a system of voluntary delisting, investors may have a better protection of their own rights and interests by exercising the rights of shareholders. The smooth delisting of *ST Erzhong Heavy has shown that voluntary delisting could be an effective way of handling conflicts of interests of all parties and realizing normalization of delisting.
2. *ST Boyuan INV is the first company put into suspension of listing due to illegal disclosure of significant information in China’s securities market, conducive to cleaning the market environment and establishing market confidence.
On March 26, 2015, *ST Boyuan INV was transferred by the China Securities Regulatory Commission (CSRC) to the investigation of public security organs due to being suspected of irregular disclosure and non-disclosure of important information and of forging and altering financial instruments. According to relevant regulations, the SSE had issued delisting risk warnings since March 31 and, on May 22, decided to suspend listing of *ST Boyuan INV on May 28. *ST Boyuan INV was thus made the first company in the securities market that was under listing suspension and put under investigation of public security organs due to serious violations. Such measures will surely help clean the market environment and establish market confidence to a great extent.
Since the mechanism for suspension of listing of *ST Boyuan INV was activated, the SSE has been strictly observing laws and regulations at all relevant jobs, paying special attention to protecting the rights and interests of investors, with focus on the following aspects:
(1) Driving the company toward better information disclosure to fully reveal the delisting risk. After the company was put under investigation by public security organs due to serious violation of laws, the SSE urged the company to disclose details and outcomes of its violations, especially to explain, based on the relevant delisting procedures and steps, the specific course of suspension and termination of listing to investors in a bid to settle their anticipation.
Statistics show that during the 31 trading days from March 31 to May 14, 2015, the company disclosed 22 announcements of risk warning. As to the problem that in the company’s annual report disclosed on April 30, 2015, its Board of Directors, Board of Supervisors and senior executives would not guarantee the authenticity, accuracy and integrity of the information disclosed, the SSE launched its quick reaction mechanism and required the company to state reasons without reservation and rectify the flaw in time. The SSE also reminded the market of the delisting risk and trading risk about the company through channels like news conference, investors’ education column and official Weibo account.
(2) Beefing up supervision over abnormal activities in securities trading and maintaining the trading order. There’s been speculation in stock trading since delisting risk warning was applied to *ST Boyuan INV on March 31, against which the SSE urged the company and relevant responsible bodies to execute their obligations of information disclosure. Besides, it also made some other efforts mainly in the following three aspects. Firstly, the company’s stock trading information was publicized on the SSE’s official website every day to remind investors of trading risks; secondly, temporary trading suspension was applied for three times to abnormal trading activities featuring an in-session turnover rate of more than 30%, and necessary supervision was imposed on investors conducting irregular overbuying and securities companies that hadn’t properly handled compliance management of clients’ trading; thirdly, as for irregular shareholding lessening by the largest shareholder within the period of risk warning, the SSE took prompt supervision and explicated that the shareholder should no longer trade the company’s stocks within 2 days after the report on equity change was disclosed.
In the next stage, the SSE will analyze suggestions from the market participants on delisting based on the delisting experience of the above-mentioned two companies, optimize and specify relevant policy arrangements and working procedures, and boost perfection of a delisting mechanism oriented to the market, based on laws and regulations and operated in normalization.
