New market rules further clarified to avoid chaos

The guideline to strictly execute the delisting mechanism released by the China Securities Regulatory Commission on Friday and the exchanges' revised listing rules unveiled on the same day aim to rule out the disqualified companies in the A-share market and will make no short-term impact on the market, Guo Ruiming, head of CSRC's department of listed company supervision, responded Thursday night.

The guideline and revised rules have made proper arrangements for setting standards and preparing for the transitional period. The purpose is to step up efforts to eliminate the "zombie companies" and the "black sheep" in the A-share market. The market view claiming that the change in delisting rules mainly targets small-cap companies is "pure misreading", said Guo.

Next year, about 30 companies trading at the Shanghai and Shenzhen bourses will touch the delisting line which is based on combined financial indicators, according to the CSRC's calculations. Another 100 companies may face delisting risk warnings in 2025.

But these companies still have one and a half years to improve operation and quality. They will be delisted only if they fail to improve the financial indicators by the end of 2025, explained Guo.

If measured by market value, only four companies listed on the main board at the Shanghai and Shenzhen exchanges currently see their market value below 500 million yuan ($69 million) each, touching the delisting line. The technology-focused STAR Market in Shanghai and ChiNext in Shenzhen found no company approaching the delisting standard, which draws a bottom line of 300 million yuan of market value, he said.

The CSRC's new guideline has also said that A-share companies failing to distribute dividends as expected will receive other Special Treatment (ST) warnings. Targeting companies able to pay dividends but who have not paid for a long time, or those with a lower dividend payment ratio, the new arrangement eyes on improving the stability and predictability of public companies' dividend payment.

It should be noted that this ST warning is different from a delisting ST warning. Companies receiving ST warning for dividend issues will not be delisted and such warning can be with withdrawn as long as the company meets the certain dividend payment requirements.

Such ST warning targets profitable companies or companies with positive net profit for the most recent fiscal year and positive undistributed profit at the end of the parent company's reporting year, according to Guo.

ST is executed only when the company fails to meet both criteria on dividend payment ratio and dividend payment amount, said Guo. The cumulative cash dividend payment over the recent three fiscal years should be no less than 30 percent of the combined net profit during the same period. As to the dividend payment amount, the base line is drawn at a cumulative 50 million yuan for the recent fiscal years for main board companies and 30 million for companies trading at STAR Market and ChiNext.

The huge research and development investment that STAR Market and ChiNext companies make during early development stage has also been taken into consideration. For companies seeing cumulative R&D investment in the last three fiscal years accounting for more than 15 percent of their cumulative operating income, or those making large R&D investment of more than 300 million yuan in three years, ST warning will not be implemented even if the dividends do not meet the above conditions, added Guo.

Only about 80 companies trading at Shanghai and Shenzhen exchanges may touch the standard for dividend-related ST warning based on the data between 2020 and 2022, according to the CSRC.

shijing@chinadaily.com.cn