Boyuan case to spark more delistings

Investors check stock prices at a securities brokerage in Huaibei, Anhui province. [Photo/IC]

Report suggests as many as 40 troublesome firms are bracing for disciplinary action by regulator

Analysts expect China's securities watchdog to delist more problematic companies this year, as it seeks to restore investor confidence through an intensified elimination of law-breaking listed firms.

The Shanghai Stock Exchange on Monday delisted Zhuhai Boyuan Investment Co Ltd, the first company to be ousted by the China Securities Regulatory Commission for violation of disclosure rules and fraudulent practices, including forging commercial bills and inflating asset and profit.

Analysts said the case could now lead to more delistings, as the regulator seeks to nurture a healthier and more stable market.

South China Morning Post on Tuesday cited a source close to the CSRC as saying the regulator had compiled a list of 30 to 40 troublesome companies, and could be poised to initiate more delistings.

"The report is not unfounded, as the CSRC has made it very clear it will toughen its stance toward market irregularities and financial crime," said Dong Dengxin, a finance researcher at the Wuhan University of Science and Technology.

Boyuan became the first company to be delisted after the CSRC refined the mechanism in 2014, with the aim of eliminating what it considered "trash" companies.

Analysts now said Boyuan's delisting could also stem the growing interest in shell companies, seen as ideal avenues for so-called backdoor listings by Chinese companies, and help clamp down on other illegal market activities.

"The Boyuan case could mark the beginning of a new regulatory approach in China with an emphasis on the rule of law," said China International Capital Corp in a research note.

"It will also help deter illegal activities including speculation on shell companies, insider trading and financial frauds."

So far this year, at least 42 listed companies have issued warnings of possible delistings, citing reasons including rising losses and being probed by the securities regulator for possible wrongdoings, according to financial data provider Wind Information.

A previously ineffective delisting mechanism has been one of the root causes blamed for recent market manipulation, and dishonest accounting practices by some firms.

Analysts said a more effective delisting mechanism will also help pave the way for the launch of the much-anticipated registration-based initial public offering system.

"The registration-based IPO reform intends to raise listing efficiency," said Dong.