The China Securities Regulatory Commission (CSRC) is set to undertake actions in order to curtail speculation on shell companies set off by China concept stocks returning to the A-share market. The rules are likely to make it challenging for firms in China that are listed abroad to relist in China after privatization. This trend is partially set off by arbitrage opportunities from the valuation gap between overseas and China’s stock markets.
According to CSRC spokesperson Deng Ge, it will be banned to raise money for restructuring to buy a shell company. Deng added that firms, whose controlling shareholders are learnt to have broken laws or rules in the past three years, will not be permitted to be sold as shells.
The CSRC has fined around 134 A-share companies since January 2014. Moreover, this action effectively bans these companies from being sold as a shell firm. Several foreign-listed China’s firm are being drawn back home by improved price-to-earning ratios on the A-share market. On 17 June, the average P/E ratio on the Shenzhen index was 38 and on the Shanghai index was 14, as compared with Hong Kong index's P/E ratio of 9.79.
But several companies are considering a backdoor listing due to the huge waiting list for an initial public offering. A total of 801 firms were on the IPO waiting list as on June 2. Around 200 IPOs are permitted every year and this has resulted in prices of shell firms to rise sharply.
The material has been provided by InstaForex Company – www.instaforex.com