CSRC Clamps Down on Speculative Purchases of A-share Shell Companies
Yicai Global
/SOURCE : Yicai
CSRC Clamps Down on Speculative Purchases of A-share Shell Companies

(Yicai Global) June 20 -- In Chairman Liu Shiyu's biggest show of force since taking office four months ago, the China Securities Regulatory Commission is to take a series of actions to curb speculation on shell resources triggered by China concept stocks, or those mainland companies listed on foreign stock exchanges, returning to the A-share market.

Raising funds for restructuring to purchase a shell company is to be banned and companies whose controlling shareholders have been found to be engaged in illegal activities over the last three years will not be allowed to be sold as shells, CSRC spokesperson Mr. Deng Ge said.

Some 134 A-share firms have been penalized by the securities market regulator since January last year and this action effectively disqualifies them from being bought as a shell company.

Better price-to-earning ratios on the A-share market are enticing many foreign-listed Chinese companies back home. Last Friday, the Shenzhen index had an average P/E ratio of 38 and the Shanghai index a P/E ratio of 14, compared with the Hong Kong index's P/E ratio of 9.79.

However, the long waiting list for an initial public offering has led many firms to consider a backdoor listing instead. As of June 2, there were a total of 801 companies on the IPO waiting list. Only around 200 IPOs are approved per year. This has caused prices for shell companies to skyrocket.

Last year, online gaming developer Giant Interactive Group Inc. listed through shell company Chongqing New Century Cruise Co. As a result its share price surged 573 percent from CNY31 (USD4.7) to CNY212. Similar speculative buying of shell companies will be curbed in the future.

A-shares are denominated in Chinese yuan and are traded on the Shanghai and Shenzhen stock exchanges. Only Chinese individuals and institutions can buy them.

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