10 Shanghai-listed firms warn of delisting risk

Ten Shanghai-listed firms issued a collective announcement on Friday warning investors of their delisting risk due to fraud investigations.

This was the first group of listed firms going through delisting procedures after the Shanghai Stock Exchange introduced a new stock listing regulation on Nov. 16, requiring firms under investigation for fraudulent share issuance or information disclosure by the China Securities Regulatory Commission (CSRC) to issue delisting warnings.

Before the regulation, investors were often unprepared for share trading suspensions.

According to the new regulation, the delisting warning should be given to alert investors, after the warning, their trading can continue for another 30 days.

The bourse should, in principle, delist such companies within one year of the suspension, if remedial actions were ineffective.

On Tuesday, Boyuan Investment Co. Ltd. became the first listed firm to issue the delisting warning. It is under investigation for false financial information involving billions of yuan.

Industry insiders hold the view that Boyuan is likely to be removed from the stock exchange. The market will see more "flawed" firms delisted thanks to the new regulation.

Although delisting is common in the United States and other equity markets, it is quite rare in China, where majority shareholders and local governments decide whether a company should be pulled from the market.

Stock delisting in China mainly focuses on financial performance. Companies reporting losses for three consecutive years face suspension. Stocks may be delisted if trading volume is too low or the share price falls below one yuan (about 16 US cents).