Delisting Reform Directly Refers To Profit Creation And Leads Companies To Focus On Long-Term Development

It is less than half a month since the end of 2020. At the end of each year, all kinds of surprise trading plays of A-share listed companies appear. According to incomplete statistics, since the fourth quarter of 2020, more than 150 A-share companies have announced plans to sell real estate, land and subsidiary equity, and the annual "shell wars" have entered a "critical moment".

However, the upcoming delisting rules may make this special "scenery of the year" different.

Smooth multiple exit channels, direct to the formation of profit margin protection

As an important basic system of capital market, delisting system plays an important role in clearing out the inferior assets and improving the efficiency of market resource allocation. However, due to the problems such as easy manipulation of single profit index and long delisting process, the problem of "difficult delisting" has long troubled the domestic capital market.

As the import and export ends of China's capital market, the "full implementation of the stock issuance registration system" and "the establishment of a normalized delisting mechanism" are in the same line and promoted simultaneously. At present, the pilot registration system has been implemented. By setting up multiple IPO indicators, the inclusiveness of the market entry has been enhanced, and the diversified exit channels matching the multiple listing standards are naturally ready to emerge.

On November 28, Yan Qingmin, vice chairman of the China Securities Regulatory Commission (CSRC), publicly said that for the "empty shell zombies" who have lost the ability of sustainable operation, we should strengthen the rigidity of delisting, and never allow "prolonged delay". On December 14, Shenzhen and Shanghai Stock Exchange issued the draft for comments on the revision of relevant delisting rules, aiming at adhering to the direction of marketization, legalization and normalization, improving delisting indicators, simplifying delisting procedures, broadening multiple exit channels, and further improving the exit mechanism of listed companies, with a view to breaking the "delisting difficulty" problem of listed companies.

Among them, the combination index of "net profit before and after deduction is negative, and the operating income is less than 100 million yuan" is introduced to replace the previous single net profit index. It depicts and accurately identifies "shell" companies in multiple dimensions. It directly points out that some companies try their best to manage earnings to avoid delisting. It also echoes the IPO's concern from "sustainable profitability" to "sustainable operation ability". In this context, delisting will no longer simply examine the profits of enterprises, but also to see whether they have the ability to continue to operate. Losses are no longer the main concern of delisting. Delisting supervision will pay more attention to the timely clearance of "zombie enterprises" and "shell enterprises".

The "routine" has been changed and the regulatory attitude has remained unchanged

In the case of a single net profit index, loss making companies usually make sudden transactions at the end of the year, making profits by selling assets, getting subsidies, and receiving donations. Some companies simply rely on "financial technology" such as correcting accounting errors in the early stage, accounting policies or changes in accounting estimates to make profits, so as to avoid delisting.

The reporter observed that if the rationality of the company's plan is insufficient, the authenticity is questionable, and the intention of maliciously evading delisting is obvious, it will usually attract the high attention of supervision. For the lack of commercial substance, unfair price and doubtful accounting treatment, the regulatory authorities have always been keeping a close eye on the situation, timely inquiry and attention, and digging out the "dirty trade".

On December 1 this year, * ST Zhaoxin disclosed that it plans to sell Shenzhen core land for 250 million yuan. As early as the end of 2019, the company had prepared to sell the plot for 150 million yuan, with a book value of 8.37 million yuan. According to the company's reply to the inquiry letter of the Shenzhen Stock Exchange in the previous transaction, the company is suspected of deliberately hiding key information such as the relationship between the trading partner and the company, and the land planning has commercial use but is evaluated according to industrial use. After the disclosure of the reply letter, it caused widespread doubts in the market, and the company was forced to terminate the transaction. At present, the company has been losing money for two consecutive years. At the end of this year, the company raised the trading price and "made a comeback". On the day of the announcement, it received a letter of concern from the Shenzhen Stock Exchange, pointing directly to the price difference between the two transactions and the motivation of covering the shell.

Similarly, at the end of October, * ST Shelley, which suffered continuous losses, suddenly turned the sealed up self use real estate into investment real estate. Through a simple accounting adjustment operation, the company's net assets increased by nearly 100 million yuan. In December, after the former chairman of the company transferred nearly ten million accounts receivable from the company to a third party, the third party immediately cancelled the company's debts, further thickening the company's assets. The exchange also immediately sent a letter asking about the rationality of the property appraisal price and debt exemption and the compliance of accounting treatment.

In addition, Shenzhen Stock Exchange has issued more than 100 letters since this year, focusing on whether there are contradictions and compliance in the accounting treatment before and after the correction of accounting errors, and has taken disciplinary actions against eight companies such as diamond glass, * ST energy saving and Meisheng culture for correcting accounting errors.

The reporter is concerned that after the delisting risk warning of listed companies due to two consecutive years of losses or negative net assets, the company can avoid delisting through earnings management in the next year. After the reform, the financial indicators and audit opinion type indicators are cross applied to block the above evasive space. After that, the audit opinions issued by intermediary organizations will play a greater role. And the exchange has always stressed the responsibility of intermediary agencies. In the early stage, in the letters concerning the major accounting treatment problems of St BUSEN and * ST Fenda, in addition to the accounting firm being required to verify and express their opinions, the individual signing accountants were also required to express their opinions, and the intermediary responsibility was further compacted.

It can be predicted that after the new delisting rules, some companies with long-term lack of main business will find it difficult to avoid delisting by selling assets and taking subsidies. New "shell" moves will surely appear, but regulation will follow. Even if the routine is constantly renovated and the means are more and more hidden, the regulatory attitude towards avoiding delisting will never change.

Lack of sustainable operation ability, shell resources return value

Before that, selling assets is the most commonly used means to protect the company. Some companies even sell their core assets in order to save themselves. This practice of drinking poison to quench thirst has damaged the sustainable operation ability of listed companies, and some companies even went to the edge of delisting. Taking st Zhongji as an example, the company completed the restructuring in 2015, with only large barrels of raw material sauce and small package tomato products remaining in the main business, with a single product structure. Affected by factors such as overcapacity of domestic ketchup industry and insufficient supply of tomato raw materials, the main industry has been losing money since 2015. In 2017 and 2019, it mainly relied on debt restructuring income to make up the deficit, which has been hovering on the edge of delisting.

In addition, bankruptcy reorganization has become a common self-help means of Listed Companies in recent years because of its huge profits and good stock price. According to statistics, since 2020, 16 A-share companies have been applied for bankruptcy reorganization. Although bankruptcy reorganization can help the company to go into battle with light equipment and have the opportunity to achieve "Phoenix Nirvana", but for the "empty shell zombie" companies whose main business is weak and has lost the ability of sustainable operation, their business often does not improve after hard protection. Especially in the case of divestiture of non-performing assets and no injection of high-quality assets, the restructured company may become "empty shell" again, and still face the risk of delisting, falling into a vicious circle of shell protection.

On the other hand, although some companies did not go to the stage of bankruptcy reorganization, they continued to "cut flesh" to save themselves and put themselves on the brink of danger. Taking * ST Huifeng as an example, the company suffered losses for two consecutive years and faced the risk of suspension of listing. In order to protect its shell, it plans to sell 51% equity of its core subsidiary at the end of October 2020. However, even after barely making it through this year, what will happen to companies that have lost their ability to sustain "blood production"? After the announcement of the sale, the company's share price has dropped 30%.

After the new delisting regulations are issued, the space for "shell" enterprises without sustainable operation ability to move and transfer has been greatly compressed. The behavior of selling high-quality assets for survival will lose its significance, and some old "shell keeping" methods will not work. Naturally, the value of shell resources should be given more question marks.

Looking back, most of the companies that have been engaged in shell protection in recent years are poor in their main business and have major defects in corporate governance and standardized operation. For example, the financial report of * ST Zhaoxin in 2019 mentioned above has been issued with an audit report that can not express opinions. All directors, supervisors and senior executives can not guarantee the authenticity, accuracy and completeness of the financial report, and * ST Huifeng has been filed for investigation by the CSRC due to its false records.

In October this year, the State Council's "opinions on further improving the quality of listed companies" stressed that the main responsibility of listed companies should be strengthened. Listed companies should be honest and trustworthy, standardize their operation, focus on the main business and operate steadily, and constantly improve the operation level and development quality. Especially after the new delisting regulations were issued, the listed companies with shrinking main business and difficult operation should focus more on restoring the ability of sustainable operation from short-term protection, improve the overall quality of listed companies and reshape the market ecology focusing on long-term development.

?