With the end of the disclosure of the 2021 annual report, a number of poor performing companies with poor quality are about to clear up and bid farewell to the capital market. According to the statistics of the reporter of Shanghai Securities News, according to the disclosure of the annual report of A-share companies in 2021, a total of 42 companies are facing compulsory delisting, and there are 18 and 24 in Shanghai and Shenzhen respectively. Among them, 17 Shanghai and 23 Shenzhen companies were cleared due to financial delisting indicators.
This means that in the second year after the implementation of the new delisting regulations, the number of A-share delisting companies in a single fiscal year reached a record high, especially the financial indicators “showed their ability”: the companies eliminated due to financial delisting in the two cities accounted for more than 95% of the compulsory delisting.
The sharp increase in the number of delisting companies is by no means an accidental phenomenon, and behind the sharp increase in financial delisting companies is the result of multiple forces “stirring up the turbid and clearing up the clear”: the modification of financial indicators in the system, the accurate portrayal of shell companies, the strict implementation of new delisting regulations by front-line regulators, the continuous optimization of revenue deduction mechanism, etc., all show great rigidity in the increasingly complex and confrontational delisting supervision. The sharp sword of “zero tolerance” regulation was polished into a sharp weapon, which accurately and effectively blocked the malicious behavior of some listed companies, especially shell companies, trying to avoid delisting, and finally made a number of poor performance “nail households” bid farewell to a shares, which became the most distinctive mark of the theme of delisting in the quarter of annual report disclosure in 2021.
new rules accurately identify the shell cleaning company
“The operating income is less than 100 million yuan + the net profit before and after deduction is negative”, which is a new portfolio financial delisting index in the new delisting regulations issued in 2020, which can accurately depict shell companies that have lost the ability of sustainable operation. In particular, the setting of “revenue deduction” further defines the boundary of implementation. The core is to “shut out” alternative income growth, so that shell companies skilled in “whitewashing” financial reports have nowhere to hide.
Typical cases are Hubei Wuchangyu Co.Ltd(600275) . At the beginning of this year, Hubei Wuchangyu Co.Ltd(600275) , whose main business is freshwater fish and other aquatic products, once tried to “break through” by relying on the shell protection of soybean business. After the continuous questioning of the Shanghai Stock Exchange on the company’s performance forecast, Hubei Wuchangyu Co.Ltd(600275) issued a performance correction announcement on April 27, saying that due to the lack of sustainability of the soybean entrusted processing and sales business, the income of about 91.5 million yuan from the soybean business was deducted as the business income irrelevant to the main business and the income without commercial substance, and the deducted revenue was revised from “106 million yuan” to “14.5 million yuan”.
Therefore, the audited net profit of 6 Sunrise Group Company Limited(002752) 021 is negative, and the revenue after deduction is less than 100 million yuan. With the official disclosure of the company’s latest annual report, Hubei Wuchangyu Co.Ltd(600275) is destined to leave the A-share market.
The reporter combed the financial delisting companies one by one and found that most of the companies with a revenue of less than 100 million yuan and a negative net profit have been “shell companies” whose main business has seriously shrunk or even completely lost their main business, and they do not have the ability of sustainable operation. In order to avoid delisting, the usual method of such companies is to increase the income scale at the end of the period.
For example, Cred Holding Co.Ltd(600890) , whose main business is the rental of its own property, the company’s main business has become hollow in recent years, and only realized an income of 2 million yuan in the first three quarters of 2021, with a negative deduction of non net profit, which has been warned of delisting risk. Due to a new property management business, the revenue of Cred Holding Co.Ltd(600890) soared in the fourth quarter of last year.
However, the Shanghai Stock Exchange noted that the relevant real estate had been completed and filed in December 2020; At the same time, there are only about 20 staff, and cleaning and security are outsourced; The chairman of the company holds a post in the owner’s company, which belongs to related party transactions.
The regulatory authorities believe that the above property management business has been carried out since the fourth quarter of 2021, which is significantly different from the original business model of self owned real estate rental. This part of property management income should be deducted according to the operating income deduction rules “income generated by business that has not formed or is difficult to form a stable business model”. Under the supervision of the regulatory authorities, the real performance of Cred Holding Co.Ltd(600890) 2021 has surfaced. In the end, due to the unsatisfactory performance, Cred Holding Co.Ltd(600890) will also be a separate A-share market.
auditor’s “gatekeeper” continues to be effective
Because it includes key financial elements such as net assets, operating income and net profit, as well as the types of audit report opinions, financial delisting indicators have a more direct relationship with audit institutions. The new delisting regulations more clearly stipulate that the annual report audit institution shall issue special verification opinions on the deduction of operating income. In practice, the flexible application of this rule by annual audit accountants makes it difficult for lucky “shell companies” to succeed.
For example, Xiamen Overseas Chinese Electronic Co.Ltd(600870) , which is hovering on the edge of delisting, originally planned to rely on an imported frozen beef business to achieve shell preservation “transformation”, but the audit institution resisted the pressure from the company and made it clear in the audit opinion that this income should be deducted.
According to the reasons issued by the audit institution, Xiamen Overseas Chinese Electronic Co.Ltd(600870) 2021’s revenue of 134 million yuan from “imported frozen beef” business mainly occurred in the second half of 2021. In addition, there are uncertainties in customer sources, repurchase rate, supplier dependence and capital sources, which should be deducted from the deduction of revenue. The amount of revenue after deduction is zero yuan. The net profit of .
Due to the non-standard opinions presented by the intermediary, Xishui Strong Year Co.Ltd Inner Mongolia(600291) , Hna Innovation Co.Ltd(600555) , Lanhai Medical Investment Co.Ltd(600896) 3 Shanghai companies will withdraw from the stock market directly. Among them, HNA is a listed company Hna Innovation Co.Ltd(600555) , which is a typical shell company with long-term losses. In order to achieve the purpose of protecting the shell, the company originally planned to obtain 106 million yuan of income through the sale of real estate, so as to make the performance meet the standard in 2021. However, due to doubts about the company’s sustainable operation ability and real estate sales revenue, the audit institution is unable to express its opinion on Hna Innovation Co.Ltd(600555) ‘s 2021 annual report, and the company will also face delisting.
Audit opinions issued by audit institutions based on professional ethics, diligence and professional ability are related to whether listed companies touch delisting indicators. Therefore, in recent years, the regulatory authorities have increased the practice supervision of intermediaries before, during and after the event, and urged intermediaries to be diligent and responsible.
From past experience, some intermediaries failed to play the role of “gatekeeper” well due to interest driven, independence and professional competence. As the “gatekeeper” of Xinjiang Yilu Wanyuan Industrial Investment Holding Co.Ltd(600145) , Shenzhen Tangtang certified public accountants received the notice of administrative punishment and market prohibition on November 2, 2021. In the notice, the audit independence of the firm was seriously lacking, and the details of assisting Xinjiang Yilu Wanyuan Industrial Investment Holding Co.Ltd(600145) to avoid delisting were exposed.
improving the delisting mechanism is inseparable from the consensus of all parties
The reporter noted that as of May 4 this year, among the 21 companies in Shanghai stock market that touched various delisting situations, 18 were compulsory delisting, all from listed companies identified as ” ST” in 2021, and half of them touched the indicator of “operating revenue less than 100 million yuan + negative net profit before and after deduction”. In 2021, there were 14 delisting companies in Shanghai stock market, including 8 compulsory delisting companies.
The major breakthrough of delisting reform is first due to the improvement of the system. In December 2020, the Shanghai and Shenzhen Stock Exchange issued the “new regulations on delisting”, comprehensively improved the delisting standards, simplified the delisting process and strictly supervised the delisting. On April 29, 2022, in order to meet the requirements of registration system reform and normalized delisting and further improve the post delisting supervision of listed companies, the CSRC issued the guidance on improving the post delisting supervision of listed companies.
“In just five months this year, 21 Shanghai listed companies have withdrawn from the stock market, setting a new high in the past 30 years since the establishment of China’s capital market. With the continuous progress of delisting reform, the number of delisting companies is expected to increase.” In the view of industry veterans, in the early stage of the release of the new delisting regulations, the market was worried that the operating income indicators in the combined financial indicators were easy to be avoided. In practice, the “operating income deduction” specially designed by the new delisting regulations not only tightened the “fence” of the delisting system, but also provided a legal basis and clear boundary for the supervision and implementation.
At the same time, the newly added “quantitative indicators of major financial fraud and delisting”, together with the previous four situations, have “locked” major illegal securities companies in multiple dimensions. The opinions on strictly cracking down on illegal securities activities in accordance with the law, issued in July 2021, clearly requires that illegal acts such as false statements and financial fraud should be strictly, quickly and severely investigated and punished in accordance with the law. Closely adhering to the “zero tolerance”, this year’s major illegal delisting ushered in a new breakthrough after Shanghai Boyuan investment became the first major illegal delisting company of A-Shares in 2016.
At the beginning of 2022, Xinjiang Yilu Wanyuan Industrial Investment Holding Co.Ltd(600145) , Xin Jiang Ready Health Industry Co.Ltd(600090) , 6 Henan Shenhuo Coal&Power Co.Ltd(000933) companies were simultaneously warned of major illegal delisting risks. According to the latest situation, Xinjiang Yilu Wanyuan Industrial Investment Holding Co.Ltd(600145) has been judged to be involved in major illegal delisting due to financial fraud for many consecutive years and administrative punishment issued by the CSRC. Due to the principle of first touch and first application, Easy Visible Supply Chain Management Co.Ltd(600093) , Xin Jiang Ready Health Industry Co.Ltd(600090) will eventually be delisted due to financial indicators.
2022 will be a year when the new delisting regulations will become more and more prominent. According to statistics, in order to give full play to the synergy of regulatory parties, since this year, the Shanghai Stock Exchange has issued a total of 125 work letters and inquiry letters to high-risk and delisting risk companies, including 60 inquiry letters and 65 work letters, interviewed more than 50 accountants and listed companies, and some companies have been questioned for three consecutive times (or more).
In the view of industry insiders, under the background of comprehensively promoting the reform of the registration system, the establishment and improvement of the normalized delisting mechanism is a systematic project, involving local governments, securities regulatory authorities, listed companies, intermediaries, investors and other aspects. Therefore, the implementation of delisting supervision reflects the consistency, timeliness and coordination of regulatory cooperation between local governments and regulatory departments, and is inseparable from the unified consensus of all social parties to promote and improve the normalized delisting mechanism.
