Junk firms struggle to stave off delisting

Nearly a dozen mainland-listed junk companies are scrambling to reorganize or restructure their assets in order to avoid falling victim to the new delisting rules that may force them off local boards at the end of the year.

The Shanghai Stock Exchange and the Shenzhen Stock Exchange will have to decide whether to allow shares that both bear delisting risk warnings (*ST) and have been suspended from trading since before January 1, 2012, to resume trading or force them to delist before December 31, according to revised delisting rules issued by the two exchanges at the end of June.

Data from Wind, a financial information provider, show that there are currently 17 A-share companies and one B-share company awaiting such decisions from the exchanges.

The companies which have submitted their asset reorganization plans to the China Securities Regulatory Commission (CSRC) already have seen mixed responses from the country's top securities authority, according to their exchange filings.

For example, Dandong Chemical Fibre Co was given the regulatory green light on its restructuring plan, which will see the company change its name to Shandong Luqiao Co; while China Tungsten & Hightech Materials Co announced on December 8 that its reorganization proposal had been rejected by the CSRC, a development which would effectively make it impossible for the company to mount another reorganization attempt before the year draws to a close.

So far, except for five companies which have already met the requirements for a trading resumption based on their most recent interim reports, only two of the 18 firms facing delisting have received the CSRC's nod on their restructuring plans, with another five still waiting for an official pronouncement. The remaining companies which either had their plans rejected or could not locate a reorganization partner have the highest probability of being delisted.

Since 2006, poorly performing companies have rarely had their listings revoked at the Chinese stock market. Statistics from Wind indicate that only 89 A-share companies have been removed from the markets since 1999.

"The delisting of these underperformed companies will mark an important step toward strengthening market discipline," Li Daxiao, director of research at Yingda Securities, told the Global Times Sunday.

In the past, speculative investors would often buy shares of companies with risk warnings in the hope that their prices would surge sharply once another company came forward to use them for a backdoor listing - a strategy occasionally employed by companies which fail to meet listing criteria, Li explained.

"But now the year-end delisting will inhibit speculation on junk shares, as retail investors will see how dangerous the buy-in of such shares is and reevaluate the return and risk," Li added.