Shares Pledged by Major Shareholders of 404 Listed Companies Hit Forced Liquidation Price

Shares Pledged by Major Shareholders of 404 Listed Companies Hit Forced Liquidation Price

Yin Jingfei

Date: Thu, 06/14/2018 - 22:58 / source:Yicai
Shares Pledged by Major Shareholders of 404 Listed Companies Hit Forced Liquidation Price
Shares Pledged by Major Shareholders of 404 Listed Companies Hit Forced Liquidation Price

(Yicai Global) June 14 -- With the downturn of China’s A-share market, shares pledged by major shareholders of 404 listed companies have hit forced selling price, which not only brings greater downward pressure on the A-share market, but also leads to risk exposure of some of listed companies forcing them to change their major shareholders.

In China's A-share market, many large shareholders of listed companies use share pledge for financing, and some listed companies have a high proportion of share pledge.

At present, the number of A-share listed companies with major shareholders who have not conducted share pledge for financing accounts for only 2.8 percent. Shares pledged by controlling shareholders of 404 listed companies have reached or fallen below creditors’ forced liquidation price, according to data compiled by Yicai Global.

Any crisis related to forced liquidation of controlling shareholder’s high proportion of share pledge affects the listed company, directly impacting the stability of the company’s operation and control rights. Under such a scenario, the company’s share price also tends to fall further, which would seriously damage the interests of small investors, a source close to regulators told Yicai Global.

Among 3,526 A-share listed companies, only 97 major shareholders have not pledged their stocks, accounting for only 2.8 percent, Yicau Global found.

Majority shareholders in 129 listed companies had share pledge exceeding 50 percent of the total share capital. Share pledge made by major shareholders of Zangge Holding had the highest proportion, reaching 78 percent.

Market Risks

Based on the closing price on June 12, the total market value of the shares pledged in the A-share market reached CNY5.94 trillion (USD929 billion). Of which, the total value of the shares pledged by 404 listed companies that have hit forced selling price reached CNY328.9 billion, data from financial service provider Wind show.

Among the 404 companies, the market value of shares pledged by controlling shareholders in 86 companies exceeded CNY1 billion, and nine companies exceeding CNY5 billion. Kuang-Chi Technologies, Inner Mongolia BaoTou Steel Union and Xinhu Zhongbao have the highest proportion of share pledge reaching CNY9.9 billion, CNY9.1 billion and CNY8 billion respectively.

To avoid forced selling of the shares pledged, some large shareholders will find a reason to suspend trading of their stocks. However, most of them will make additional margin, supplementary pledges, or early repayments to ease the crisis. The extreme case of forced liquidation of the shares pledged so far is still rare.

Recon Wenyuan Cable announced on June 12 that the company is in danger of change of its control rights because the stock price of the company has continued to fall, leading to the shares pledged by the controlling shareholder of the company falling below the forced liquidation price.

At the close of June 12, the shares pledged by Recon Wenyuan’s major shareholder hitting forced selling price had reached 91.17 percent of the shares it held or accounted for 20.23 percent of the company’s total share capital.

At present, it is actively negotiating with the pledgee to sign a supplementary agreement and has added 20 commercial use housing and five residential housing with a total of 5,770 square meters as added pledge to deal with the risk of forced liquidation.

Editor: Mevlut Katik

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Keywords: Pledge of Stock Rights, Leveraged Financing, Financial Risk, Mandatory Liquidation, A share