China boots record number of companies from its bourses

4 days ago 29

BEIJING - A record number of companies got the boot from Chinese mainland stock exchanges last year and that number could double in 2023, as regulators ramp up efforts to cull poorly performing firms and those that violate the rules or break the law.

A total of 42 companies were kicked from either the Shanghai or Shenzhen stock exchange in 2022, the highest ever and more than double the figure in the previous year, according to public information compiled by Caixin. The vast majority were delisted due to poor financial performance.

The trend is expected to pick up further in 2023. At least 80 public companies are in danger of triggering delisting thresholds linked to finances, according to Caixin calculations based on their third-quarter earnings reports.

A company can be expelled from mainland stock exchanges based on certain parameters, which are grouped into four indicators — financial performance, share performance, compliance and violations of law.

Revised delisting standards issued by the Shanghai and Shenzhen stock exchanges, which took effect on Dec 31, 2020, seek to improve the overall quality of listed companies by lowering the bar to get kicked off. The revisions followed an October directive that year from the State Council that urged regulators to improve the delisting mechanism and simplify the process.

Regulators have been pushing ahead with enforcing the new delisting regime, specifically targeting “bad apples” as well as shell and zombie companies, according to Li Ming, head of the listed company supervision department at the China Securities Regulatory Commission.

Yet, last year’s delisting ratio of less than 1 per cent lagged in comparison with that of US exchanges, where according to a March 2021 report by Ping An Securities, it was around 4 per cent in 2020.

As of the end of December, there were close to 5,000 listed companies on the mainland stock market, with a combined market value of nearly 79 trillion yuan (S$15.34 trillion).

Still, progress has picked up pace. The number of mandatorily delisted companies in 2021 and 2022 accounted for 40 per cent of the total in the past 30 years or so, Li said at the annual Financial Street Forum on Nov 22.

Bad apples

Among the firms that were booted last year, 39 were due to poor financial performance.

Under this indicator, a firm will lose its listing if it re...

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