Investment

Author: Yan Renming / Country: Mainland China
Publisher:
Publish Date: 2001-06-01
Features: Section 4: Care for ST, PT
Liu Huo's doctor, when he was in primary school, was known as a "bad student" in school. He spent his days slacking off, playing truant, and causing trouble, which frustrated teachers, classmates, and even parents. His entire primary school life left him with memories of constant standing in punishment, criticism, and extra tutoring. China's securities market is quite young, with a decade of development barely reaching the level of a second or third grader. As one of the main components of the securities market, listed companies are also like second or third graders. Some listed companies are not doing well, showing red lights in their mid-term exams—preliminary losses. Others have been in the red for a long time, wearing the hats of ST or PT as if standing in punishment. Our investors, like parents, always have mixed feelings toward ST and PT stocks, with complex emotions. As for those engaged in securities research, they are more like homeroom teachers or subject teachers. The more aggressive ones are already discussing the exit mechanisms for ST and PT stocks, while the more moderate ones focus on solutions like debt conversion into equity and mergers and acquisitions. The CSRC or higher-level management, like the principal and deputy principal of a securities primary school, urgently need to promote the marketization of the securities industry. Policies for the marketization of listed company asset restructuring are being continuously introduced, such as allowing companies undergoing major asset restructuring to make decisions at their shareholder meetings without further approval from relevant authorities, and allowing them to issue new shares after restructuring if they become competitive. As a result, ST and PT stocks have recently seen continuous surges, with PT stocks unable to be bought even at the 5% limit-up board. Both speculators' smiles and critics' accusations have emerged. So, how should we view this "care" in policy, and what perspective and standards should we use to evaluate the marketization process of the ST and PT sector? This requires serious reflection. The process of marketization itself is a major initiative to optimize resource allocation, reduce transaction costs, and improve market efficiency. For the "care" in policies toward restructuring stocks (especially beneficial to ST and PT stocks for their "resurrection"), we should view it historically and dialectically. First, the development of the securities market is not an overnight affair. China's securities market has always been heavily influenced by the planned economy, and listed companies participating in the market could not escape its "planned" nature. However, as China's economy moves toward marketization, some listed companies that were unsuitable for economic development under the planned economy model inevitably fell into losses, and wearing the ST or PT hat was inevitable. It is normal for policies to provide "care" during the marketization process. The key is that this "care" (as can be inferred from the wording of the policy documents) gives these companies a chance to "reinvent themselves," much like supplementary tutoring after a primary school student makes a mistake and is punished, rather than immediately expelling them from school. This is the principle of historical development. Second, does the securities market not need a reasonable exit mechanism? The answer is clearly not. The limited nature of resources means that only the best, high-growth listed companies will have the opportunity to receive optimal resource allocation. The existence of numerous loss-making listed companies in the market, who are occasionally "chased" by investors, is indeed abnormal. It is essential to establish a reasonable, effective, and low-cost exit mechanism, but this mechanism must be formed through marketization. Are the exit mechanisms designed by some professionals currently colored by a "planned exit," similar to the "planned listings" during the quota system? Liu Huo's doctor believes that the "care" in policies serves two purposes: first, guiding listed companies to achieve development through restructuring and policy incentives, allowing them to operate in a marketized manner and seize opportunities for growth; second, forming an exit mechanism for listed companies in the securities market during this process—a truly marketized exit mechanism. Therefore, this is a "final care." For ST and PT companies that seize the opportunity and overcome difficulties, it is a "warm care"; for others, it is "care at the end of life." Isn't this dialectical?
At the end of the article, the author thanks his primary school alma mater, as it was the school's care that gave him the opportunity to study and pursue his education. This also echoes a romantic saying: "Giving others a chance is also giving yourself a chance."
Section 5: Restructuring—Grasping the Nape of the Second Board
The establishment of the second board market has been in full swing, and investment bankers from major securities firms are busier than ever. However, some experts are busy with different perspectives. They hold lists of second-board candidate companies and diligently seek similar enterprises or projects across China to find lucky ones with second-board listings. Their goal is simple: to identify potential enterprises to serve as reserves, to restructure and list them on the main board at the right time and in the right way.
Looking at the current market, it seems to be in a state of confusion and sorrow, with various versions of news filling the air, causing people to focus once again on the uncertainties in policy. Specifically, there are policy changes such as the merger of A and B shares, the reduction of state-owned shares, the launch of open-ended funds, and the establishment of the second board market. As a result, the market has entered a cautious adjustment period, especially after the Shanghai Composite Index hit a high of 2,114 points. However, one sector remains dynamic and fluctuating—the controversial sector of restructuring stocks. How to understand the vitality and sustainability of these restructuring stocks is a topic of concern for every market participant. The author attempts to interpret the vitality and sustainability of listed company restructuring from the perspective of the future operation of the second board market.
Large-scale restructuring of listed companies essentially aims to comprehensively upgrade enterprises. Frankly speaking, the current state of listed company restructuring is a mix of hope and concern. There are success stories like the transformation of Guhan Group into Tsinghua Biotech, but there are also failures behind the "moving stories" of market manipulators. It is crucial to view this phenomenon dialectically. The author believes that the large-scale restructuring of listed companies, led by low-priced stocks (including the ST and PT sector) with some high-performance and high-priced stocks participating, will help improve industrial structure, standardize corporate governance, enhance awareness and operational capabilities in the capital market, and ultimately significantly improve operational performance, rewarding investors. This restructuring is mainstream and aligns with the development direction of the capital market—this has always been the author's view. The reason is that this restructuring differs fundamentally from the one in 1998. First, the relaxation of policies and systems has allowed far more capital to enter the securities market than two and a half years ago, while also significantly reducing the market costs of restructuring. Second, with the advent of the knowledge economy era, various economic entities have grown substantially in the past two years, with high-quality assets or projects "flooded" outside the market, making substantive restructuring possible. Third, the rise of a new generation of investment bankers has brought long-term strategic planning and new investment concepts. Warren Buffett's philosophy of long-term holding and shared development has become the mainstream idea of this restructuring. Restructuring strategies that focus on "telling stories" and prioritize or solely target secondary market speculation are seen by the market as "short-sighted" or "in its infancy."
Therefore, we believe that this restructuring is a long-term movement involving a wide scope and deep impact, promoting the comprehensive upgrading of listed companies. The large-scale restructuring of listed companies will undoubtedly divert funds that might otherwise enter the second board market. Discussions in the market about the second board often focus on the diversion of funds from the main board to the second board, with concerns that the main board may "bleed too much" due to the second board, while the second board may become irrational due to excessive "blood transfusion." The author believes that the recent policy announcement by the CSRC, the "Circular on Standardizing Major Asset Purchases or Sales by Listed Companies," is an extremely brilliant policy measure.