A record-high 20 companies could face potential delisting this Wednesday if they fail to meet the deadline to prove to regulators their businesses have been cleaned up to meet necessary standards – a record-high for the Hong Kong exchange.
Of the 20 companies, 13 need to also gain approval from the Securities and Futures Commission (SFC) before they can resume trading. Just recently, two more companies (Dynasty Fine Wines Group and Coolpad Group) had just made the 12-month deadline and secured resumption of trading.
«We believe the [new requirement] will encourage issuers to work towards resuming trading in their shares as soon as possible when trading has had to be suspended,» said David Graham, chief regulatory officer at the time and current head of listing for the Hong Kong Exchange & Clearing. «Our goal is to maintain the quality and reputation of Hong Kong's securities market.»
Bad Business Practices
Many of the shares were frozen due to bad business practices including problems with financial statements, serious cash shortages, and management issues, according to an «SCMP» report.
«To remain on the stock exchange, they must show they have cleared up the queries from their auditors, or they have strengthened their management teams, or have found investors to inject new capital,» the report added.
In August 2018, the exchange announced a new rule stating that stocks that have been suspended for trading for longer than 12 months would be permanently expelled from the bourse. Newly frozen stocks after the rule announcement were given 18 months to improve their standards. Previously, there was no limit for suspension with some stocks having been frozen from trading for years.
Asia’s Delisting Frenzy
Should all the companies fail to satisfy regulators, the 20-strong delisting in one year would mark a record-high for the Hong Kong exchange and one of the highest of all time for any exchange globally. The 20 companies have a combined market capitalization of $11.5 billion.
Delisting is trending in the region with Singapore also posting record figures, but not due to regulatory pressures. Investors are seeking to take companies off the exchange due to persistently low valuations (Strait Times Index is trading at a one-year forward price-to-book ratio of 1.13, compared to MSCI ASEAN Index’s 1.71).
As of last week, 14 companies were undergoing privatization or in the process of being bought out year-to-date in Singapore, a 3-year record-high according to a recent DBS report.
