(Yicai Global) Dec. 18 -- Delisting from the National Equities Exchange and Quotations is a huge setback for China Science & Merchants Investment Management Group Co., also known as CSC, and the company has already begun to prepare for floating in other capital markets.
This could turn out to be a blessing in disguise, CSC Chairman Shan Xiangshuang said at an internal meeting on Dec. 15.
CSC, a giant in the Chinese private placement industry, will be forcibly delisted from the NEEQ on Dec. 26 for failing to comply with requirements regarding self-check and rectification of private placement entities. Trading of the firm's shares suspended for one day today and will resume tomorrow.
"Although we were mentally prepared for this and came up with a response plan during our repeated communication with the stock transfer system earlier, we were still shocked to see the delisting announcement tonight," Shan Xiangshuang said, commenting on the stock transfer system's decision to delist CSC. "This morning, I just went to the stock transfer system office to discuss rectification issues with them."
The reason cited for this delisting decision is that CSC's management fee and performance-based remunerations accounted for 41.39 percent of revenue last year, failing to meet the requirement of article I of the Eight Articles on Private Placement, which stipulates that "the management fee and performance-based remunerations should account for over 80 percent of the total revenue."
In the face of the major changes that have taken place in private equity regulatory policies since last year, CSC has taken steps to comply with regulations and has made every effort to rectify relevant key performance indicators in accordance with the stock transfer system's requirements to protect investors' interests and steady corporate development, Shan Xiangshuang said
The company has done everything it could to stay on the NEEQ, he said.
As a general investment group, CSC regards private equity fund management as only part of its business. After private placement, the proportion of direct investment soared, and the return on direct investment increased. The proportion of private placement incomes is less than 80 percent.
According to fund management contracts, change of fund managers requires the consent of all investors. Therefore, the company is unable to settle funds or change the fund managers in the short term, and so it is unable to deregister its status as a fund manager, thus failing to meet the requirement, Shan Xiangshuang said.
"The National Equity Exchange and Quotations issued a notice to terminate the company's listing on the grounds that our rectification did not meet the requirements," Shan Xiangshuang said. "We will work together with the lead broker to properly handle the follow-up issues after the termination of listing, especially the protection of the rights and interests of small and medium-sized investors in accordance with the requirements of NEEQ."
In the Notice on Self-check and Rectification of Listed Private Equity Institutions issued on Oct. 27, NEEQ listed the new listing rules for the original Notice on Matters Concerning the Listing and Financing of Financial Enterprises in more detail, unified the calculation standard and required listed private equity institutions to submit their rectification reports to the NEEQ by Nov. 10.
Among the new listing rule that had the most significant impact on listed private equity institutions was the first one, which requires that "the institution's sum of management fee and performance-based remunerations should account for more than 80 percent of the total revenue," and the fifth, which requires that "the average annual paid-in asset under management in the latest three years of a venture capital institution be above CNY2 billion (USD300 million) and that of a private equity institution be above CNY5 billion."
Five of the 15 private equity institutions listed on NEEQ that have submitted their self-check and rectification reports have been ordered to delist due to their non-compliance with the rectification requirements. CSC, which listed on NEEQ in March 2015, was one of them.
With help from the NEEQ capital platform, CSC once quickly raised more than CNY10 billion via four private placements.