Recast of A-share companies gains big momentum

Easing of CSRC's rules geared to inject vitality into market and real economy

The Chinese central regulators have relaxed the grip on the restructuring of A-share companies in order to inject more vitality into the market and better serve the real economy.

The China Securities Regulatory Commission reviewed 109 restructuring applications by Nov 15 this year, among which 96 have been approved.

In China, corporate restructuring entails mergers, acquisitions, and spin-off of irrelevant or underperforming assets and reverse takeover.

In October, the CSRC announced a loosening policy for the companies whose initial public offering plans have been vetoed.

Prior to that, such companies were allowed to carry out restructuring only three years after the IPO disapproval. But now, the time interval has been shortened to six months.

In addition, the CSRC introduced a speedy supervision mechanism for smaller scale of mergers and acquisitions.

Industries imperative for accelerated restructuring and upgrading such as high-end numerical control machine tools, robots, and aerospace equipment will be given priority.

Furthermore, qualified Chinese companies listed in overseas markets are allowed to participate in the restructuring of A-share companies.

Asset management institutions, including private equity funds, are encouraged by the CSRC to set up equity investment funds, venture capital funds and bond investment funds to participate in mergers and restructuring of privately-owned enterprises.

The market responded actively to the regulators' push. According to Shanghai-based market information provider Eastmoney Choice, there have been 4,010 merger and restructuring cases by Nov 15 this year, with the total value reaching 1.82 trillion yuan ($262.5 billion).

Fang Xinghai, vice-chairman of the CSRC, said that mergers and restructuring of listed companies will help the country's economy to develop with higher quality.

"Most of the companies now target the assets belonging to the same industry or those in the same value chain. About 71.88 percent of the approved merger and restructuring cases belong to this category," he said.

Feng Weidong, CEO of Shenzhen-based Tianhu Capital, said that the relaxed policy on mergers and restructuring is definitely good news for the market. Without positive expectations on policies, it will take longer time for the Chinese market to become more professional, he said.

Bao Yue, president of Beijing-headquartered Heaven-Sent Capital Management Group, said that the merger and restructuring activity in the A-share market has been slumping since the end of 2015.

Sluggish activity in the secondary market has been one major impediment. The difficulty of restructuring has been multiplied by the price inversion between the primary and secondary markets. The relatively higher rate of approved IPOs has also somehow resulted in weakening demand for mergers, he explained.

"The overly pursuit of profit was one major problem left after the heat of mergers and restructuring over the past few years. Companies should always bear in mind what is the purpose of mergers," he said.