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Today's course series “Hong Kong Stock Investment 20 Lectures”
Lecture 5 “Understanding the Hong Kong Stock Suspension and Withdrawal System”
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Today, I will use a few typical cases to take you through the suspension and delisting system of Hong Kong stocks.
In the securities market, suspension of trading is more like a gamble for investors.
There are many reasons that can cause stock trading to be suspended. Usually, companies need to publish news that is sensitive to stock prices. Suspension of trading may be initiated by a listed company or ordered by the Stock Exchange.
The purpose of establishing a suspension mechanism is to avoid unfair disclosure of information on individual shares and to prevent insider trading.
The suspension of trading has a certain impact on investors, but the suspension is not entirely bad news. For example, if the company is suspended due to a takeover proposal or the introduction of strategic shareholders, it may be beneficial for the company and investors.
Therefore, the vast majority of the effects of suspension of trading on stock prices will show a sharp rise or fall after the opening of the market.
I. Hong Kong Stock Exchange's Suspension System
The suspension of trading on the Hong Kong Stock Exchange is divided into two categories: active suspension and passive suspension.
(1) Active suspension of trading
It means that a listed company voluntarily submitted an application for suspension of trading. Mainly because there is news that is sensitive to the stock price that needs to be announced.
such as:
Price-sensitive information was not disclosed in a timely manner, such as pending stock offerings or allotments.
When the company receives an acquisition proposal and is required to discuss with major shareholders whether to agree to the acquisition, it will also apply for suspension of trading. If the relevant proposal is not announced to the public, trading of shares will need to be suspended. Even if there are no proposed details, the company must disclose to the public details that the company is discussing a possible acquisition agreement.
Some major transactions involving disclosure, such as significant changes in the nature or control of the company's business, require detailed disclosure or shareholders' consent, and therefore trading may also be suspended.
The company will be taken over, liquidated, or involved in major lawsuits or investigations, etc.
For example, a typical example of active suspension of trading in the Hong Kong stock market this year is$Tianneng Power (00819.HK) $.
In May, the agency CloudyThunder Research released a report on shorting Tianneng Power, believing that the company had serious financial fraud and that its stock value was almost zero, and called on the relevant regulators to make careful judgments about the company's ongoing spin-off and listing on the Science and Technology Innovation Board.
Affected by this, the company's stock price continued to fall by more than 7%.
In response, Tianneng Power announced on the 27th that trading of the company's shares has been suspended for a short time since 10:59 a.m. on May 27, 2020.
Awaiting an insider information clarification notice on the rumor relating to the published article.
A clarification notice was issued on the 29th, and it was announced that trading would resume at 1 p.m.
Added: Click on the blue letters on the right to get the Tianneng Power release on May 29Clarification announcement and resumption of trading.
(2) Passive suspension of trading
This means that when the Stock Exchange discovered unusual fluctuations in the stock price of a listed company, it ordered the listed company to suspend trading.
The reasons include the following:
There were unusual unexplained fluctuations in the company's stock price and trading volume, and the Stock Exchange was unable to contact the company's authorized representative to determine that the company was unaware of the reasons for the unusual fluctuations in its share price and trading volume. If this happens, the company will be ordered to suspend trading in order to protect investors' interests.
Sensitive information that may affect stock prices has not been fully distributed in the market, or someone has deliberately carried out market manipulation activities, leading to unusual fluctuations in the price or trading volume of the relevant stocks.
The company failed to maintain a minimum public shareholding.
The Exchange believes that the company does not have sufficient assets or business to maintain its listing status, or that the company's business is unfit to continue listing.
During the suspension period, the exchange requires the issuer to notify the exchange of the following information: any changes in circumstances affecting the reasons the issuer initially requested suspension, or other reasons that the issuer wishes the exchange to consider when deciding whether to continue the suspension.
The famous example is$Huishan Dairy (06863.HK) $After being shorted, the company's stock price fluctuated greatly, and trading was eventually suspended and officially delisted at the end of last year.
On December 15, 2016, when Muddy Water issued its first shorting report against Huishan Dairy, it did not attract the attention of the market. The second short selling report was issued again on the 19th. Huishan Dairy's stock price was hardly impacted.
Three months later, it was reported in the market that the majority shareholders of Huishan Dairy had misappropriated 3 billion yuan of account capital to invest in real estate. The funds could not be recovered. As many as 23 creditor banks were involved. Huishan Dairy had 91% of its warehouses laundered on the same day.
Since then, members of Huishan's board of directors have left their posts, Ge Kun has lost touch, and the bank is collecting debts.
On December 28, 2019, Huishan Dairy was officially disqualified from listing after being suspended for more than 2 years.
II. The Hong Kong Stock Exchange's Delisting System
The Hong Kong Stock Exchange's delisting system has detailed standards and arrangements, but until 2018, there were no clear quantitative delisting mechanisms and delisting criteria.
For Hong Kong main board companies, delisting generally involves 3 stages, each of which lasts 6 months. Within these 6 months, if the listed company fails to submit a workable proposal to resume trading, the listed company's listing status will be cancelled.
Therefore, delisting and delisting is also a lengthy process.
We still have the above$Huishan Dairy (06863.HK) $Take for example.
The main reason for delisting is that the suspension lasts for a long time, and the issuer's failure to take appropriate action to restore its listing status may cause the exchange to delist it.
In March 2017, Huishan Dairy's debt crisis broke out, involving an amount of 72 billion dollars. On March 24, the company's stock price fell 85% during the day.
1. Three days later, the Hong Kong Stock Exchange determined that Huishan Dairy did not meet the requirements of the Listing Rules relating to having sufficient business operations or assets, and placed Huishan Dairy in the first stage of the delisting process in accordance with the application guidelines in section 17 of the Listing Rules.
In the first stage, if the securities of a listed company have been suspended for 6 months or more without complying with the relevant Main Board's “Listing Rules”, then the company will enter the second stage of the delisting process.
2. On September 27, 2018, Huishan Dairy entered the second stage of the delisting process. The expiration date is March 12, 2019.
After entering the second stage of the delisting process, listed companies will have 6 months to submit viable resumption proposals to the exchange. If a listed company fails to submit a workable proposal to resume trading within the deadline, it will enter the third stage of delisting.
3. On May 3, 2019, Huishan Dairy entered the third stage of the delisting process. The expiration date is November 15, 2019.
After entering the third stage of delisting, listed companies will have a final 6 month period to submit a viable resumption proposal to the exchange. If a workable proposal to resume trading is not submitted at the end of the third phase, the listed company's listing status will be cancelled.
Although Huishan Dairy tried to divest and restructure 83 subsidiaries during this period, it was aborted due to objections from creditors; since then, Huishan Dairy tried to find capital injection and restructuring from Yili Group, but the market also heard no news of success.
Also, in addition to being suspended for a long period of time, the listing status may also be withdrawn under certain circumstances.
If an issuer fails to comply with the Listing Rules and the Stock Exchange considers the situation serious, or believes that the issuer does not have sufficient business operations or assets of equivalent value to ensure that its securities can continue to be listed, or that the issuer or its business is no longer suitable for listing, the exchange will publish an announcement and specify a remedy period, and may suspend trading of the issuer's securities.
If the issuer fails to remedy it within the time limit, the exchange may delist it. If a listed company makes a remedial proposal thereafter, it will be treated as a new listing application.
3. How to deal with delisted stocks
Shares that are delisted from the Hong Kong stock market cannot be publicly traded, and the Listing Rules no longer apply to the company.
However, investors holding company shares are still nominal shareholders of the company, and shareholders' rights can only be regulated by the laws of the place where the company was incorporated and the company's own articles of association documents.
However, in most cases, investors almost always lose their money.
Because these passively delisted stocks basically all have serious problems, such as fraud or financial problems, inability to maintain normal business activities, or even bankruptcy, the company is worthless.
The best example is still Huishan Dairy. According to the latest news, on August 19, Liaoning Huishan Dairy Group Co., Ltd. was listed as an executee by the Shenyang Shenbei New District People's Court.
OK, that's all for today's sharing!
Do you know more about the case of Huishan Dairy?
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The practical class will continue tomorrow.
Lecture 6 “Understanding Hong Kong's Securities Regulatory System” is waiting for you!
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Attachment: Course Links“20 Lectures on Hong Kong Stock Investment”