China to strengthen delisting rules to improve health of stock market

Reuters

SHANGHAI, July 4 (Reuters) - China has issued a draft of new

rules to get loss-making companies or those in violation of

regulatory practices to delist, in its latest move to improve

stock market conditions.

The China Securities Regulatory Commission (CSRC) published

the draft rules on Friday and is seeking public feedback. It is

not clear when formal rules will be published, but the draft is

typically finalised with modifications within two months.

For the first time, the regulator has offered a variety of

choices for poorly-performing companies to apply for delisting,

giving them preferential treatment such as priority to re-list

if their performance improves. The CSRC outlined the process in

a series of documents on its website, www.csrc.gov.cn.

Companies that are reluctant to delist but fall under the

regulatory conditions to delist will be forced to do so, and

will not be given preferential treatment, the draft rules said.

Those that make false financial declarations in initial

public offerings or earnings reports and companies that post

years of losses or see their share prices close under the face

value of their shares for 20 days, fall into the category.

The CSRC said 78 firms have been delisted from the Shanghai

and Shenzhen exchanges since China allowed for delistings in the

early 2000s for reasons including poor earnings performance.

But since the first delisting of a loss-making company,

Shanghai Narcissus Electrical Co, in 2001, the progress to kick

out poor performers or rule breakers has been slow and has

largely been suspended since 2008 until recently, analysts said.

Among other factors, the slow delisting process was because

of resistance from various parties, including local governments,

to give up their listing resources, analysts said.

Poorly-performing companies were thus allowed to suspend

share trading for years to conduct so-called corporate

restructuring to the detriment of investors.

However, there have been signs that regulators are reviving

the process as China steps up the pace of market reforms since

the country's new leadership took power in November 2013.

Regulators announced in April the delisting of loss-making

shipping company Nanjing Tanker Corp from the Shanghai Stock

Exchange after a five-day grace period, marking the first time

a company backed by the central government was dropped from a

domestic exchange.

"The draft rules published today reflect improvements

against the previous regulations in many aspects," said Qian

Qimin, head of research at Shanghai Shenyin and Wanguo

Securities. "However, past experiences have shown that in China,

it is more important to force the implementation of rules."

(Reporting by Lu Jianxin and Pete Sweeney; Editing by

Jacqueline Wong)