SHANGHAI, July 5 (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.
