(Yicai Global) Jan. 29 -- One of China’s leading state-run publications sharply criticized large shareholders misappropriating assets of their listed companies. The Economic Daily, administratively managed by China's State Council, the country’s cabinet, and the Party Central Committee, today commented on two recent such cases in an open disapproval.
The two cases involve Leshi Internet Information & Technology Corp. [SHE:300104] and Jiangsu Protruly Vision Technology Group Co. [SHA:600074], whose share prices fell sharply recently. Large shareholders encroaching assets of listed companies causes great harm, and not only lead their companies to be unable to maintain normal operations, but also incur huge debts, making it increasingly difficult to be bailed out by other investors, said the Economic Daily. Minority shareholders also suffer heavy losses, and financial institutions involved are put at greater risks.
Main means of major shareholders misappropriating assets of listed companies include transfer of interests through associated transactions and fund transfers through external investment. The affiliated parties of Leshi’s founder, Jia Yueting, owed a total of CNY7.5 billion (USD1.18 billion) to the public company, according to Leshi’s own statement. Protruly's former chairman, Zhuang Min, misappropriated the company's CNY3.28 billion assets through external investment, the daily added.
Tshare prices of both listed companies are in a continuous decline. Shares of Protruly slumped by the daily limit of 10 percent for 22 consecutive trading days, to CNY3.53 per share as of today. Leshi's share price also fell by the daily limit for four consecutive trading days since resumption of trading on Jan. 24 after nine-month suspension, closing at CNY10.06 per share.
China's A-share listed companies generally lack mechanisms by which small shareholders can effectively monitor major shareholders, the Economic Daily believes, and independent directors and supervisors are also often responsive to major shareholders. In addition, the lack of professional short-selling institutions in China's A-share market also leads to major shareholder violations that may go unnoticed at times.
Preventing risks is the top priority for China's financial industry this year, the paper pointed out, adding that regulators should strengthen supervision of capital accounts of listed companies, tighten oversight of appointment process of independent directors and supervisors and severely punish duty negligence of financial intermediaries on illegal behaviors of the listed companies.