Following the privatization announcement by leading Chinese brokerage firm Haitong International, the Hong Kong stock market took the initiative to withdraw its listing status or add another case.

November 28, A+H listed company$CIMC VEHICLES (01839.HK)$One day after the suspension of trading, it was announced that it plans to repurchase all issued H shares in the share capital (except those held by CIMC Group and its co-actors). After completing this matter, the leading semi-trailer company will also withdraw its H-share listing status.

Under the influence of low liquidity, the valuations of many Hong Kong stock companies have shrunk since this year, which has led to limited financing, compounded by the maintenance costs required to go public in the Hong Kong stock market, causing some companies to retreat.

According to incomplete statistics, more than 20 Hong Kong stock listed companies announced the active withdrawal of their listing status during the year. Most of them were companies with low market capitalization and insufficient profitability. According to industry insiders, this is also a kind of “exit” from the Hong Kong stock market. However, at the same time, there is no shortage of well-known companies such as Haitong International and Dali Foods that have announced their withdrawal from the Hong Kong stock market.

End of more than 4 years of Hong Kong stock travel

On the morning of the 28th, CIMC Vehicle A shares and H shares both announced the suspension of trading, planning to disclose important matters. After the market, the company disclosed announcements on the Shenzhen Stock Exchange and the Hong Kong Stock Exchange respectively.

According to the announcement, at the board meeting held on November 27, the company's board of directors agreed to plan the H share repurchase and delisting plan and preliminary preparations, and initially agreed to repurchase and cancel the H shares already issued by the company in the form of a comprehensive offer (other than those held by CIMC Group and its co-actors).

In other words, CIMC Auto voluntarily withdrew its H-share listing status on the Hong Kong Stock Exchange. Currently, the total issued share capital of CIMC Vehicles is 2,018 million shares, including 564 million H shares and 1,454 million A shares.

According to the announcement, the offer price for this repurchase is HK$7 per H share, involving nearly HK$1,027 million. Based on the company's stock price of HK$6.44 per share on the previous day (ending November 27), the repurchase price premium was approximately 8.7%. CIMC Auto said that if the company subsequently promotes the repurchase and delisting of H shares, the offer price will be determined according to the initial intention disclosed above under the same or better conditions as the offer price.

And after completing this repurchase, CIMC Auto will also bid farewell to the A+H equity structure. The leading semi-trailer company completed its IPO on the Hong Kong Stock Exchange in July 2019. With the subsequent implementation of this plan, the company will also end its Hong Kong stock journey of more than 4 years.

Regarding the active withdrawal of its listing status, the explanation given by CIMC Auto is that considering the low trading volume and limited liquidity of H shares, it is difficult for the company to effectively finance on the Hong Kong Stock Exchange; furthermore, the potential H share repurchase, if implemented, will bring one-time investment income to H share shareholders who accept potential H share repurchases.

At the same time, CIMC Auto said that if H-share delisting is implemented, the company will be able to save costs and expenses related to H-share listing regulatory compliance. Its board of directors believes that potential H-share repurchases and H-share delistings will benefit the company and its shareholders as a whole.

Mainly due to low valuation and limited financing

Just as the reason given by CIMC Vehicle, in recent years as the Hong Kong stock market has continued to be sluggish, the liquidity of Hong Kong listed companies has also been questioned. Low valuations and limited financing functions are the main reasons why related companies have taken the initiative to leave the Hong Kong stock market.

According to incomplete statistics, since this year, 20 Hong Kong listed companies have voluntarily withdrawn from the Hong Kong stock market, announced privatization, or voluntarily withdrew from listing. Among them, most of the companies that have proposed privatization are companies with low market capitalization, a single shareholder holding ratio of more than 50%, and low profit levels. Privatization is mainly due to the long-term slump in stock transactions and insufficient equity financing capacity, making it difficult to maintain a listed position.

For example, Yongsheng New Materials, which will be delisted in February next year, currently has a market value of only HK$680 million. Li Cheng, founder of Yongsheng Group, indirectly holds 74.02% of Yongsheng New Materials; IMAX China has a market value of HK$2,645 billion, and its controlling shareholder, IMAX Corporation, holds 71.63% of the company's shares.

However, there is no shortage of well-known companies such as Dali Foods and Haitong International that have voluntarily withdrawn their listing status. Both of these companies have a market value of over 10 billion Hong Kong dollars.

On June 27, Dali Foods suddenly announced plans to privatize and delist. Dali Foods completed its IPO in Hong Kong in 2015, becoming the largest IPO project for consumer goods in the world that year, and the largest food and beverage IPO in the Asia-Pacific region in 12 months at the time.

Since its listing, the stock price of Dali Foods has continued to rise. It peaked at HK$6.86 in January 2018, surpassing HK$100 billion in market value. However, after 2018, the stock price gradually declined and remained below HK$5 per share for a long time. On June 1 of this year, the stock price of Dali Foods fell to HK$2.43, a new low.

Dali Foods said in the announcement that the main reasons for delisting include: low stock prices; the company has lost its advantage in maintaining its listing position; limited ability to raise equity capital; poor stock price performance has adversely affected the company's business development; and privatization is conducive to the company's implementation of long-term strategies.

Meanwhile, on October 6, Haitong International, a leading Chinese brokerage firm, announced that it had requested Haitong International Holdings to privatize Haitong International through an agreement arrangement. This news also caused shock in the industry. Haitong International is also an international platform owned by Haitong Securities. Its privatization offer has cancelled about 2,283 million shares, and the maximum cash cost to be paid is about HK$3.47 billion.

According to Wind data, from 2019 to 2022, there were 9, 17, 24 and 15 listed companies that completed privatization in the Hong Kong stock market, respectively. However, these privatized enterprises come from various industries, covering manufacturing, energy extraction and development, real estate, asset management, and the art industry, etc. Among them, the manufacturing and real estate industries account for the highest share.

Repurchase of shares at a high premium

It is worth noting that in the face of undervalued stock prices, in the final privatization plan, many companies bought back and cancelled the current outstanding shares at a premium higher than the current stock price to appease other shareholders.

According to Dali Foods' privatization plan, Rongshi International, wholly owned by Dali founder Xu Shihui, will buy back Dali Foods shares from investors at a price of HK$3.75 per share, up to a 37.87% premium over the closing price of HK$2.72 per share before the suspension of trading.

However, according to Haitong International's plan, Haitong International Holdings was asked to repurchase shares at a price of HK$1.52 per share, involving a maximum of about $3.417 billion. This price is 114% higher than Haitong International's closing price of HK$0.71 per share on October 6. Moreover, driven by news of high-premium privatization, Haitong International's stock price soared 97.18% on October 9.

Overall, improving the liquidity of Hong Kong stocks has become a consensus in the market. According to industry insiders, there are three main reasons why listed companies have taken the initiative to withdraw their listing status from the Hong Kong stock market: first, the company's stock price is low, and some companies are even below their net asset value; second, market turnover has been low for a long time, causing the company to lose its refinancing function; and third, there is a need for internal restructuring within the company. When a company is seriously undervalued, major shareholders or external consortiums are motivated to privatize the company and re-list it in a market with a higher valuation.

However, in addition to listed companies taking the initiative to withdraw their listing status, the Hong Kong Stock Exchange is also speeding up “clearance” this year. As of November 12, a total of 46 companies were delisted from the Hong Kong Stock Exchange this year. On October 26 alone, the Hong Kong Stock Exchange cancelled the listing status of six companies, including China Creative Digital, Tianshan Development, Haisheng Juice, Xinhai Energy, China Digital Information, and Goldin Finance. Previously, in August, five companies had their listing status removed from the Hong Kong Stock Exchange.

Since the Hong Kong Stock Exchange revised the “Listing Rules” in August 2018 to the relevant delisting-related provisions, the number of Hong Kong stock listed companies being delisted has increased from 4 in 2018 to 47 in 2022.

But on the other hand, up to now, there are still more than 100 companies waiting in line to knock on the Hong Kong Stock Exchange. This is also a rare phenomenon in the market. In the first half of this year, the performance of the Hong Kong stock IPO market continued to be sluggish. The amount of financing was the same as last year, yet the number of listed companies increased by 30%. Moreover, with the implementation of the new listing regulations for special technology companies, the range of emerging enterprises that the Hong Kong stock market can serve and accept has further expanded.

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