① Small and medium shareholders have improved their sense of security and attainment. They can protect their rights and interests by sharing the proceeds of the price difference; ② regulations have severely cracked down on various types of illegal holdings reduction. Since last year, more than 10 cases of illegal holdings reduction have been ordered to be corrected (repurchased); ③ violators are unable to obtain benefits through illegal acts, and may even have to pay more to buy back shares, which guarantees the fairness of the market.
Financial Services Association, April 19 (Reporter Lin Jian) The incident where Gao Lin's HLR reduced its holdings of listed company Longji Green Energy shares has ushered in the latest developments. On April 18, Longji Green Energy announced that the company's equity will change. The main reason is that the company's shareholder HHLR Management Co., Ltd. will increase its shareholding through centralized bidding transactions, and the shareholding ratio will increase to 5%.
The picture shows the shareholder repurchase announcement issued by Longji Green Energy
On the evening of November 8, 2023, Longji Green Energy announced that HHLR Management Co., Ltd., the shareholder of the company, received a notice from the Securities Regulatory Commission. HHLR Management Co., Ltd. transferred Longji Green Energy shares in violation of restrictive regulations, and the Securities Regulatory Commission decided to investigate it.
HHLR Management Co., Ltd. mentioned in the latest announcement that the company actively cooperates with the investigation work of the China Securities Regulatory Commission. According to the spirit of supervision, they promise to take the initiative to continue to increase their holdings of Longji Green Energy shares with self-financing and complete the repurchase of all reduced shares within the next month. If the proceeds involved in this share repurchase will be owned by the listed company, they will continue to strengthen their study of laws, regulations and regulatory documents to serve the high-quality development of China's capital market.
It is worth mentioning that HHLR Management Co., Ltd. has also made it clear that other than the above shareholding plans, there are no disclosed but unfinished plans to increase or reduce the shares of listed companies.
HHLR Management Co., Ltd. claims that it “will complete the repurchase of all reduced holdings within the next month,” and it can be seen that ordering the repurchase is being viewed as an innovation in administrative supervision measures to deal more effectively with market irregularities, and is gradually showing results.
In the new “National Nine Rules” and “Certain Opinions of the State Council on Strengthening Supervision and Risk Prevention to Promote High-Quality Development of the Capital Market”, which has received much attention, it is clearly proposed to comprehensively improve the holdings reduction rule system, including strictly regulating the reduction of holdings by major shareholders, especially controlling shareholders and actual controllers, resolutely preventing all types of detours from reducing holdings in accordance with the principle that substance is more important than form, and ordering offending entities to repurchase shares that have been reduced in violation of regulations and surrender price differences, and severely crack down on all kinds of illegal holdings reduction.
As one of the supporting documents of the new “National 9 Rules”, the “Administrative Measures for Shareholders of Listed Companies to Reduce Their Shareholdings (Draft for Comments)”, which is currently being publicly solicited, also mentions that if shareholders of listed companies reduce their holdings in violation of these Measures, other regulations of the Securities Regulatory Commission, or stock exchange rules, the Securities Regulatory Commission may, in order to prevent market risks and maintain market order, take supervisory measures such as ordering the repurchase of shares in violation of regulations and the payment of price differences, regulatory discussions, and warning letters to listed companies.
Regulatory measures are increasing by ordering offending entities to buy back shares that have been reduced in violation of regulations. According to the reporter's incomplete statistics, there are at least 13 listed companies whose shareholders have recently been ordered to buy back their holdings in violation of regulations, including Laiyifen, Shanghai Xinyang, Zhengyuan Co., Ltd., Wanye Enterprise, Tongcheng New Materials, Taichenguang, Onli Education, *ST Huichen, JPT, Western Test, Xiaosong Co., Ltd., and ST Nanwei.
Make violators pay a “painful” price
The system for reducing the holdings of listed companies has been comprehensively upgraded, especially by resolutely preventing detours from reducing their holdings. In particular, the new “National Nine Rules” also clearly proposed “introducing administrative measures to reduce the holdings of listed companies and classify different types of shareholders” or “severely crack down on all kinds of illegal holdings reduction.” Combining the cases in this phase and the release of a series of documents, the reporter observed that at least two aspects of the change are worth paying attention to:
First, there has been a shift in the regulatory authorities' action logic. Previously, it started more from the perspective of “punishing after the fact,” but now it is more prominent to “fight early and reduce” and “correct in a timely manner.” To a certain extent, supervision is changing in its ideology and actions, as shown by ordering offenders to buy back shares that have been reduced in violation of regulations and pay the price difference. Ordering a repurchase reflects five characteristics:
Timeliness: Ordering repurchases can be executed quickly, avoiding possible long waits in the traditional filing and punishment process, so that irregularities can be corrected in a timely manner and market order can be restored.
Deterrent power: It changes the previous impression of minor penalties for violations, making violators face greater financial pressure and costs, and thus has a stronger deterrent effect.
Fairness: Violators are unable to benefit from illegal acts, and may even have to pay more to buy back shares and restore transaction order, which guarantees the fairness of the market.
Compensation and sharing of benefits for small and medium shareholders: Small and medium shareholders have improved their sense of security and attainment, and they can protect their rights by sharing the proceeds of the price difference paid.
Guidance: It will better guide all types of market participants to focus on their main business, rather than having a sense of luck in taking a detour to reduce their holdings, and truly establish a sense of compliance in fear of the market and fear of the rule of law.
Second, some market participants believe that regulation can curb illegal holdings reduction to a certain extent through methods such as ordering repurchases or filing investigations. In particular, it is gradually forming a market atmosphere where “no one dares to backfire”. It is more strict and tighter. The main thing is that the cost of illegal acts has increased.
Take the shareholders of Xiaosong Co., Ltd. as an example. The reporter noticed that on March 17, 2023, Xiaosong Co., Ltd. disclosed the “Pre-Disclosure Notice Concerning the Reduction of Shareholdings by Controlling Shareholders and Directors”. The controlling shareholder of the company, Huaxin Chuangli plans to reduce its holdings of the company's shares by 3.181,400 through centralized bidding within six months from April 10, 2023, accounting for 1% of the company's total share capital. Chuangli Hua Hin reduced its holdings on August 25 and September 4, respectively. Of these, the holdings were reduced by 953,000 shares on September 4, which was an illegal reduction in holdings.
Based on the above, in December 2023, Huaxin Chuangli, the controlling shareholder of Xiaosong Co., Ltd., was subject to regulatory measures due to illegal holdings reduction. The Guangdong Securities Regulatory Bureau believes that Huaxin Chuangli has violated the “Certain Regulations on Shareholders, Directors and Supervisors of Listed Companies to Reduce Their Shareholdings” and issued administrative supervision measures ordering correction of Huaxin Chuangli's irregularities in accordance with the relevant provisions of section 14 of the “Certain Provisions on Shareholders, Directors and Supervisors of Listed Companies”. At the same time, it is also required to take active measures to eliminate the impact of illegal acts. The Shenzhen Stock Exchange reported, criticized, and punished the violation, and included it in the listed company's integrity file.
Subsequently, Chuangli Hua Hin promised to buy back the 953,000 shares of the company whose holdings were reduced in violation of the above regulations as soon as permitted by the rules. On the second trading day after Huahin Chuangli promised to buy back, it fulfilled all of its promises in full, repurchased 953,000 shares of the company's shares that had previously been reduced in violation of regulations, and the proceeds from the repurchase of the shares were also paid to the listed company.
The reporter noticed that ordering the corrections mentioned in the above case to eliminate the impact of illegal acts is reflected in the new “Nine National Rules” and “Administrative Measures for Shareholders of Listed Companies to Reduce Their Shareholdings (Draft for Comments)”, which means “resolutely preventing all types of detours from reducing holdings in accordance with the principle that substance is more important than form, ordering offending entities to buy back shares that have been reduced in violation of regulations and pay price differences, and severely crack down on all kinds of illegal holdings reduction.”
The Securities Regulatory Commission has stated that the “Measures to Reduce Holds” in the consultation have further solidified this measure, which is conducive to promptly correcting irregularities, preventing relevant entities from profiting in violation of regulations, and also minimizes damage to small and medium-sized investors.
According to a set of data released by Ping An Securities Research, the majority shareholders of A-shares reduced their net holdings by only 4.6 billion yuan in the first quarter of 2024, a decrease of 84.2% compared to the fourth quarter of 2023.
Strictly crack down on all kinds of illegal holdings reduction
The reduction of shares held by major shareholders, directors and supervisors of listed companies has always been the focus of attention of capital markets and regulators. The topic of holdings reduction is unabated, and regulatory measures are continuing to be followed up. Overall, the Securities Regulatory Commission and the exchange level have separately introduced a number of regulations for major shareholders and directors and supervisors to reduce their shareholding holdings, such as the “Rules for Managing Shares Held by Directors, Supervisors, and Senior Managers of Listed Companies and Their Changes” introduced in 2007, and “Certain Provisions for Shareholders, Directors and Supervisors of Listed Companies to Reduce Their Shareholdings” in 2017. The Shanghai and Shenzhen Exchange has successively formulated and issued implementation rules, business notices, etc. relating to share holdings reduction at the level of self-regulation rules.
It is worth mentioning that the aforementioned “Certain Provisions for Shareholders, Directors and Supervisors of Listed Companies to Reduce Their Shareholdings” has now been upgraded to “Administrative Measures for Shareholders of Listed Companies to Reduce Their Shareholdings (Draft for Comments)” and issued in the form of regulations of the Securities Regulatory Commission.
Guo Ruiming, director of the Supervisory Department of Listed Companies of the Securities Regulatory Commission, once mentioned in response to a question from a Financial Association reporter at the Securities Regulatory Commission press conference that the “Shareholding Reduction Measures” that were publicly solicited for comments this time will be upgraded from regulatory documents to regulations, and the stability and binding power of the system will be further strengthened. This measure will become a basic rule regulating holdings reduction. The “Shareholding Reduction Measures”, “Shareholding Change Rules” and the special regulations for venture capital private equity fund holdings reduction together form a “1+2” rule system, which is easy for all parties in the market to understand and abide by.
Strict continuous supervision of listed companies
It is easy to see that, starting from regulatory measures such as investigation or repurchase orders, they all fall within the scope of the continuous supervision system of listed companies. Strict continuous supervision of listed companies is an important measure to ensure the healthy and stable development of the capital market. In addition to comprehensively improving the holdings reduction rules system, the new “Nine National Rules” also put forward requirements in three directions:
Strengthen information disclosure and corporate governance supervision. Establish a comprehensive punishment and prevention system to prevent counterfeiting in the capital market, and seriously rectify illegal acts in key areas such as financial fraud and appropriation of funds. Urge listed companies to improve their internal control systems. Effectively play the supervisory role of independent directors and strengthen restrictions to guarantee the performance of duties.
Strengthen the supervision of cash dividends of listed companies. For companies that have not paid dividends for many years or that have a low dividend ratio, the majority shareholders are restricted from reducing their holdings and implementing risk warnings. Increase incentives for companies with high-quality dividends, and take more measures to increase dividend rates. Enhance the stability, sustainability and predictability of dividends, and promote dividends for more than one year, pre-dividends, and pre-Spring Festival dividends.
Promote listed companies to enhance investment value. Formulate market value management guidelines for listed companies. The study incorporates the market value management of listed companies into the internal and external assessment and evaluation system of the enterprise. Guide listed companies to repurchase shares and then cancel them in accordance with law. Encourage listed companies to focus on their main business and comprehensively use methods such as mergers, acquisitions, restructuring, and equity incentives to improve the quality of development. Strictly crack down on illegal acts such as market manipulation and insider trading in the name of market value management in accordance with the law.