New Regulations on Shareholding Reduction Impact Over 1,700 Listed Companies, Including Cambridge Technologies
August 27, 2021 – The China Securities Regulatory Commission (CSRC) has recently introduced new regulations on shareholding reduction, which are set to have a significant impact on the A-share market. Alongside the reduction of transaction stamp duty, these new regulations aim to activate the capital market and create a more regulated shareholding reduction system.
Under the new regulations, controlling shareholders and actual controllers of listed companies that meet certain criteria will not be allowed to reduce their holdings of the company’s shares through the secondary market. These criteria include bankruptcy or net bankruptcy of the listed company, non-payment of cash dividends in the past three years, and accumulated cash dividends being less than 30% of the average annual net profit in the past three years.
According to the CSRC, a total of 2,325 listed companies, accounting for 45.9% of all listed companies, do not meet the new regulations on shareholding reduction. However, after excluding companies that have been listed for less than three years, there are still 1,721 companies that are affected by the regulations. These companies include 1,296 companies on the Main Board, 350 companies on the Growth Enterprise Market, and 74 companies on the Science and Technology Innovation Board.
The biggest obstacle for reducing holdings under the new regulations is the requirement for companies to meet the dividend standards. Approximately 1,000 companies do not meet this requirement, including Cambridge Technology, a star stock in the optical module industry, which has not paid dividends in the past three years.
It is worth noting that Gerald G Wong, the actual controller of Cambridge Technology, will be restricted from reducing his holdings as per the new regulations. Wong had previously sold shares worth 130 million yuan when the company’s stock price soared this year.
On a positive note, the new regulations are expected to increase the dividend payment ratio of listed companies. In order to reduce their holdings, controlling shareholders will now have to focus on increasing dividends, resulting in a new balance between controlling shareholders and investors.
Apart from dividends, the new regulations also consider factors such as breaking the issue and breaking the net. Breaking the issue refers to companies that have experienced a significant drop in stock price below the initial issue price, limiting the controlling shareholder’s ability to reduce their holdings. Breaking the net restricts controlling shareholders from reducing their holdings if the company is in a state of net bankruptcy.
Overall, the new regulations aim to curb major shareholders and important shareholders from reducing their holdings when stock prices rise. This move is expected to boost confidence in the stock market. However, it is unclear whether companies that have already announced shareholding reduction plans but have yet to complete them will be subject to the new regulations.
The implementation of these new regulations is expected to reshape the A-share market, with over 1,700 listed companies being directly impacted. Investors and market participants will closely monitor the effects of these regulations on share prices and dividend policies in the coming months.
Note: This article is for informational purposes only and should not be considered as investment advice. Readers are advised to make investment decisions at their own risk.