Lately, the Shanghai Stock Exchange (SSE) officially released the “SSE Guidelines for Listed Company’s Press Conference on Reorganization for Listing”. For relevant background and content, an SSE official answered the following questions raised by reporters.
1. Lately, the SSE released the “SSE Guidelines for Listed Company’s Press Conference on Reorganization for Listing” to require that a listed company involved in back-door listing should hold a press conference after releasing its reorganization scheme. What are the reasons of formulating the “Guidelines”?
A: In recent years, the regulation on reorganization for listing (also known as “back-door listing” in the market) has been continuously strengthened. Lately, the China Securities Regulatory Commission (CSRC) has solicited public opinions on the revised “Administrative Measures for Significant Asset Reorganization of Listed Companies” (the “Measures” for short) and further improved the identification standard and regulatory measures for reorganization for listing. The regulation on reorganization for listing has thus been more standard and scientific. Compared with ordinary significant asset reorganization, reorganization for listing, with a complex scheme, generally attracts great attention from the market, presents complicated interest game among different parties involved, and is of greater possibility of leading to illegal behaviors, thus exerting more direct influence on investors’ interest. Therefore, in-process and aftermath regulation on information disclosure should be synchronously followed up and the regulation mechanisms of media and investors should be strengthened simultaneously after the optimization in the institutional aspect.
The rules and regulations on information disclosure of reorganization for listing have been put in place, but there are still some prominent problems in the actual implementation. Some listed companies were “involved in back-door listing” for many times but all failed, which resulted in “roller-coaster” trends of their share prices; before being involved in “back-door listing”, some reorganized assets showed a phenomenon of suddenly buying shares, which was highly suspected of profit delivery; some listed companies presented abnormal fluctuations in their share prices before trading suspension due to reorganization, which deviated from the relevant companies’ fundamentals; some reorganized assets were of low quality and weak profitability, but were highly valued, greatly exceeding the average level in the industry; some reorganization party made performance commitments that totally disagreed with the existing profitability of the relevant reorganized assets, bringing about great risks in realizing the commitments; and some listed companies took various methods to make detours to avoid back-door listing. The SSE will pay great attention to these problems in its late inquiry of reorganization schemes and its continuous regulation on reorganization for listing.
On the other hands, the information disclosure of some listed companies can’t entirely clarify and dispel doubts of the market and investors yet, and there is great uncertainty in the carry-out of the scheme of reorganization for listing.
At this point, the “Guidelines” released this time mainly aims at setting up an external communication system of reorganization for listing, so that media and investors will have an opportunity of directly facing listed companies, reorganization parties and intermediaries to raise questions and being replied on site. And its fundamental object is to further enhance pertinence and effectiveness of the information disclosure of reorganization for listing and give play to the supervision function of media and the restriction mechanism of the market more effectively.
2. What specific regulations does the “SSE Guidelines for Listed Company’s Press Conference on Reorganization for Listing” make on holding of press conference and the participants?
A: For the convenience of taking part in the press conference and raising questions by media and investors and to ensure effects of the press conference, the “Guidelines” has made specific regulations on the participants, venues and methods, procedures and information disclosure of the press conference.
The first is to include all parties related to reorganization for listing into the scope of attendance. To ensure that media and investors will have a comprehensive understanding of the overall situation of reorganization, it stipulates that, apart from directors and supervisors of the listed company, the actual controller of the underlying asset, the signatory and the responsible person of the intermediary must attend the press conference. Besides, the individual or institution that obtained the equity of the underlying asset in the 6 months before trading suspension and during trading suspension should also attend the press conference to clarify the doubts on suddenly buying shares and profit delivery.
The second is to ensure the independence and specialty of the media present upon invitation. To ensure that the press conference can reflect the doubts of the market, the listed company is required to invite no less than 3 information disclosure media designated by the CSRC. Other journalists with the Journalist Permit issued by the State Administration of Press, Publication, Radio, Film and Television can also attend the press conference. Besides, to fully protect the right to know of small and medium investors, representatives of China Securities Investor Services Co., Ltd. can also attend the press conference. The listed company or related parties of the underlying asset can invite experts of relevant industries and security analysts if necessary.
The third is to stipulate the venue and method of holding the press conference. To ensure the authority of the press conference and for the convenience of the media and investors attending the press conference, the listed company is required to hold the press conference in the trading hall of the SSE or other approved places, and the press conference should be broadcast online.
The fourth is to make each procedure strict. Before the press conference, the listed company is required to timely give a notice of the press conference in the form of a special announcement and collect in advance the problems concerned by media and investors. During the press conference, relevant parties should first introduce the real situation of reorganization for listing in an all-round way, make sure that the media raise all questions they concern, and define the shortest time the conference should last. After the press conference, the listed company should accurately disclosure the situation of the press conference and should answer the questions that have not been replied at the press conference.
The fifth is to make clear the basic requirements on the replies of the questions at the press conference. To prevent inappropriate replies at the press conference, it makes clear that relevant parties involved should use a kind of descriptive language and make sure the answers are true, concise and easy to be understood and that there should be neither false and misleading statements nor false publicity such as advertising publicity and expanding publicity.
3. What measures has the SSE taken to strengthen the regulation on reorganization for listing?
Reorganization for listing has been highly concerned by the market and investors, and it is also the key aspect that the SSE has regulated. Later, the SSE will, in accordance with the overall requirement of “strictly regulating by law in an all-round way”, implement the various requirements of the CSRC on strengthening the regulation on reorganization for listing, continue to strengthen the regulation on the information disclosure of reorganization for listing, and well display the function of information disclosure in restraining the “speculation on back-door listing”.
First, the SSE will carefully perform its duty of regulating information disclosure and continue to conduct the regulation and inquiry that get to the root of the matter on reorganization for listing. According to the duties endowed by the CSRC, the SSE should make aftermath inquiry on the announced reorganization scheme through information disclosure. In this process, it will strictly grasp the standards of identifying reorganization for listing, carry out multi-angle inquiry on the suspected scheme of reorganization for listing from such aspects as identifying the right of control, making clear the proportion of placed-in assets and seeing whether the underlying asset conforms to the IPO conditions, and require relevant listed company and intermediary to accurately judge whether the reorganization for listing is constituted from the essence of the trading. With regard to those suspected of “making a detour of back-door listing”, it will require them to disclose the possible risks of trading termination due to being identified as the reorganization for listing; and for the reorganization schemes much doubted by the market and with great discrepancy in understanding by investors, it will directly point to the problem, make inquiry time after time, and make clear the expectation to prevent the “roller-coaster” trend of share prices after trading resumption.
Second, the SSE will make classified regulation on the information disclosure and stock trading of the companies with the “back-door” features and strive to restrain speculation. The focus of the regulation is to crack down on stock price speculation with ambiguous expectation for back-door listing. And the major measures include keeping close watch on exaggerated, advertising, ambiguous, misleading and sensitive notices on stock prices, conducting inquiry that gets to the root of the matter immediately, suspending the stock trading of the companies that have not replied the inquires in time, and fully revealing the trading risks to investors. Since the beginning of this year, the SSE has imposed trading suspension for nearly 40 times. Besides, it has strengthened the efforts on regulating the abnormal trading, maintained tough stance in regulation on stock price speculation on back-door listing, and checked over 200 cases of insider trading.
Third, it will strengthen the continuous regulation on back-door listing and urge the party sponsoring a back-door listing to fully fulfill performance commitments as scheduled. At present, “over estimate” and “over commitment” have been a common problem in reorganization for listing and attracted wide attention. Judging from the situation in 2015, the average value-added ratio of the underlying assets of the reorganization for listing in Shanghai was 112% and the highest ratio nearly approached 10 times. Meanwhile, there is an increasing trend of the “failure” of performance commitments during merger, acquisition and reorganization. Among these cases, some reorganization parties have not fulfilled the compensation obligation according to their former commitments, but alleviated and even avoided the compensation through such substitute methods as changing the compensation methods and extending the compensation time, which has impaired the legitimate rights and interest of small and medium investors. To effectively contain this phenomenon, the SSE has focused on strengthening the continuous regulation on companies involved in back-door listing. First, it has guarded from the beginning and regarded “over estimate” and “over commitment” as key items to be inquired after the reorganization scheme; second, it has paid close attention to implementation and checked the promised performance and performance compensation one by one after the release of the annual reports; third, it has kept an eye on any change and, according to relevant replies of the CSRC, required that the reorganization party should not change its commitments. For those maliciously avoiding the commitments and compensation, the SSE will take regulatory measures in time and propose the securities regulatory bureau to inspect on site.
Source: Shanghai Stock Exchange