Trading in A-share Shell Companies Going 'Crazy,' Prices Can Rise by USD154 Million a Day
Yicai Global
/SOURCE : Yicai
Trading in A-share Shell Companies Going 'Crazy,' Prices Can Rise by USD154 Million a Day

(CBN - Global) April 21 -- Trading in A-share shell companies is beginning to heat up. Transaction fees for these shells are between CNY1 billion (USD154.36 million) to CNY2 billion, and sometimes can fluctuate by CNY100 million in a single day. It is "simply too crazy!" said the director of the merger and acquisitions division of a brokerage firm.

Many Chinese concept companies are abandoning the US stock exchanges for more attractive prospects back home, as price-to-earnings ratios are better in China's A-share market.

"Recently, many interested buyers and sellers have approached us," the director explained. "The buyers are in a hurry to buy but the sellers are not anxious to sell, and hence transaction fees for these shells continue to snowball day by day. Currently, there are companies with profits between four to five hundred million looking to borrow a shell for a backdoor listing. You need to have sufficient profits, though, to qualify as a shell borrower. Otherwise, firstly, the shell will ignore you. Secondly, it becomes really difficult for the asset contributor to support such an expensive shell without high profits."

CBN analysts believe that two key factors have created this phenomenon of buyers wanting to 'be listed but not being able to be listed.' One is that the A-share registration system has been put on hold and it is difficult for new registrations to be made. Secondly, the establishing of a Strategic Emerging Industry Board, meant to complement the trading platform the New Third Board, has been put on hold.

In fact, getting a backdoor listing through a shell company is not straightforward. There were 30 such cases in the A-share market in 2013 and 31 in 2014. Backdoor deals reached a peak in 2015 with 83 companies listing this way and which involved shell company transaction deals worth CNY575.32 billion (USD88.8 billion). However, out of these 83 firms, only 38 successfully completed their transfers and restructuring, while 16 companies failed or terminated the process.

A-shares are denominated in Chinese yuan and are traded on the Shanghai and Shenzhen stock exchanges. Only Chinese individuals and institutions can buy them.

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