SZSE Solicits Public Opinions on Guideline On Listed Companies’ Information Disclosure of High-percentage Bonus Issue from Capital Reserve or Profit

date: 2018-4-9

Shenzhen Stock Exchange (“SZSE”) solicits public opinions on Guideline on Listed Companies’ Information Disclosure of High-percentage Bonus Issue from Capital Reserve or Profit (“the Guideline”), in an effort to further regulate their behaviors in this regard.

 

In recent years, SZSE makes it a priority to regulate listed companies’ high-percentage bonus issue from capital reserve or profit with a combination of measures such as improving rules, enhancing regulation and strengthening investor education to prevent hyping of concepts and to purify the market. First, it establishes information disclosure rules. In Feb 2016, SZSE released the Format for Listed Companies’ Announcements on High-percentage Bonus Shares from Capital Reserve or Profit Scheme (“the Format”), and amended it in Dec 2016 based on latest market conditions. In this way it sets out detailed disclosure requirements on the consistency between high bonus issue and the company’s performance growth and on relevant shareholders’ stock selling schemes, which fundamentally regulates listed companies’  disclosure behavior in this regard. Second, it extends more efforts in terms of enquiry regulation. Once SZSE discovers any inaccuracy or incompleteness in listed companies’ disclosure of high bonus issue, or any attempt to cater to market hype or shareholder equity selling by means of high bonus issue, it would take regulatory actions in time, e.g. sending official letters to listed companies. SZSE follows the market supervision rule to investigate every case and reports to China Securities Regulatory Commission any abnormal transactions according to relevant regulations. Third, it enhances investor education by publishing articles on potential risks involved in high bonus issue in the “Investor Education” column of its official website, so as to help investors understand the nature of high bonus issue in a more rational manner and prevent investment risks.

 

A look at the bonus issue plans of listed companies in Shenzhen market in 2016 and 2017 proves the regulatory measures effectively viable. The number of listed companies that announced generous bonus issue dropped from 256 in 2015 to 147 in 2016, and by Mar 31st 2018, only 43 companies have disclosed high bonus issue schemes for 2017. Moreover, the market response is more rational and concept stock hype using such schemes is apparently reduced. However, some companies still show inconsistency between percentage of bonus shares from capital reserve or profit and their business performance, or are suspected of using such schemes for shareholder equity selling, which draws much public attention. The draft of the Guideline is another important measure of SZSE to intensify regulation of major issues involving listed companies, after it removed the announcement on such schemes from Express Notice scope.

 

There are altogether 14 articles in the Guideline. It mainly sets out further requirements on the disclosure of the percentage of bonus shares from capital reserve or profit, time limit and equity selling in phases, and specifies SZSE’s regulation measures on such schemes. The Guideline explicitly sets up a mechanism to link the bonus share percentage to performance growth, requiring that the number of bonus shares from capital reserve or profit per share match the net profit or net asset growth. It also set the time limit for disclosing the scheme, forbidding listed companies from disclosing any such scheme when their proposing or controlling shareholders and concert party, board directors, supervisors and executives (“relevant shareholders”) reduced their equity in the past 3 months or have plans for reducing equity in 3 months, and within 3 months prior to or after the expiration of the locking period of the restricted stocks held by the relevant shareholders. It also elaborates on the requirements for a gradual equity reduction plan over time, which stipulates that the relevant shareholders should announce that they have no plans for shareholding reducing in 3 months and disclose their reduction plan if they have one in 4 to 6 months, and that relevant shareholdings should make a commitment to abide by the foregoing. Moreover, it specifies regulation measures for such schemes, in which way to deliver the message of strict regulation to the market and improve its deterring power as a regulator.

 

The deadline of the opinion collection is 14th April 2018. SZSE will modify the Guideline for high bonus issue from profit or capital reserve in the light of the opinions from various parties in the market. According to an officer from SZSE, SZSE will conduct strict supervision and regulation pursuant to laws, strengthen the responsibilities of frontline supervision, and continue to fortify the first line of defense of market regulation. SZSE will also keep a close eye on major events, such as high bonus issue from profit or capital reserve, that are likely to give rise to market speculation, continue to guide listed companies to improve their quality and social image, help maintain market order and protect the legitimate rights and interest of investors.