A record six Chinese companies were delisted from the Australian Securities Exchange (ASX) last year, with controversial health firm Traditional Therapy Clinics the latest to be removed.
- There have been no new listings of Chinese companies on the ASX since 2017
- Experts urge investors to be cautious when considering Chinese companies on ASX
- ASX tightens listing rules to help address issues with firms from emerging markets
Figures from the ASX confirmed a total of nine Chinese companies have now been delisted over the past two years, mostly due to reporting and other governance issues.
The delistings in 2018 came in the same year that no new Chinese companies listed on the ASX and a whole lot more that applied to list were rejected.
“They promise the world, and they say they understand … but when they actually get to list here things go wrong,” Beer & Co. director Michael Beer said.
Mr Beer has helped a number of Chinese companies get listed on the ASX but said he had given up on that kind of work.
“I’ve decided I just can’t take on any more because my brand is ruined if they don’t do what they say they’re going to do,” he said.
Chinese companies started rushing to the ASX a few years back when the country’s state council urged businesses to go global.
There are currently about 40 companies on the ASX that either have China as their country of principal activity or the controller is Chinese.
But the last time one was successfully listed was in 2017 and the standstill is expected to continue for some time.
Advisors who have worked with Chinese companies said interest was falling and current market conditions and tighter listing rules meant it was likely to be some time before any new Chinese firms came onto the ASX.
The ASX also said China was not a target market and it was instead focused on New Zealand, North America, Israel, Europe and South-East Asia.
Why do Chinese companies want ASX listing?
There are a number of reasons why Chinese companies seek to list on the ASX and other foreign exchanges.
It helps them get wealth out of China and there are often also Chinese Government incentives for companies that successfully list overseas.
“The advantage with Australia is you’ve got easier listing rules [than some other foreign exchanges] … you’ve got a main board listing and you’ve got a pretty sophisticated investor base in Australia,” said Marcus Ohm, audit partner at HLB Mann Judd.
“We’ve got compulsory superannuation, so you’ve got a big pool of investor funds ready. People generally understand speculative companies a little bit better in Australia I think.”
The prestige of being listed on a well-regarded foreign exchange is another key reason.
But, still, some say Chinese companies coming to the ASX doesn’t make clear sense.
“I think they list for the wrong reasons. I think some of them list just because they want to bring wealth out of China,” Mr Beer said.
Another advisor also told the ABC he was sceptical about the motives Chinese firms had for listing on the Australian exchange.
Although the ASX no longer targets China — although it said it did in the 1990s — there remained clear advantages for the ASX in listing foreign companies.
“All exchanges want to grow the number of listed companies that they have. They get listing fees,” Mr Ohm said.
“They do do work to try and attract overseas companies to the exchange but the other side of that is they’re not going to change the standards they expect.”
‘Wouldn’t touch with a barge pole’: Kohler
ABC finance presenter and editor-in-chief of InvestSMART Alan Kohler warned investors should be cautious.
“I would be very careful about investing in any ASX-listed Chinese companies,” Kohler said.
“Many of them I wouldn’t touch with a barge pole.”
The Australian’s wealth editor James Kirby said “investors should first of all ask why are they listing here, what is wrong with the China-based markets?”
“China is a powerful investment theme however investors need to find the best way into it such as specialist funds, ETFs [exchange-traded funds] and especially Hong Kong-listed ‘China plays’, which are invariably higher quality,” Mr Kirby said.
Most of the Chinese companies on the ASX are in the small- to mid-cap range, with bigger and better-known firms that want a foreign listing trying for exchanges in New York and Hong Kong.
Diverted funds, banking irregularities and misleading statements
The most recent Chinese delisting, Traditional Therapy Clinics, which it says is one of the largest chains of traditional therapeutic health and wellness clinics in China, was taken off the ASX in December last year for failing to lodge its half-yearly accounts among other reasons.
The corporate regulator, the Australian Securities and Investments Commission (ASIC), has since applied to have Traditional Therapy Clinics wound up and a hearing is scheduled in the Federal Court later this month.
|Chinese companies delisted|
ASIC raised a series of concerns including that funds raised from investors may have been improperly diverted or dissipated and that there were irregularities in bank records.
Others removed in 2018 were Wolf Petroleum, Mandalong Resources, Winha Commerce and Trade International, China Dairy Corporation and Ding Sheng Xin Finance.
China Dairy Corporation was among the higher profile delisting cases.
The reasons for its removal included corporate governance concerns, failure to inform the market of successful legal proceedings against one of its subsidiaries and completing the transfer of shares in a subsidiary without shareholder approval.
Former NSW deputy premier Andrew Stoner was China Dairy’s deputy chairman but quit shortly before the company was delisted.
He said most Chinese companies listed in Australia did their utmost to meet ASIC and ASX standards.
“However, a minority have seemed either unable or unwilling to comply with these requirements,” Mr Stoner told the ABC.
“Unfortunately this minority have affected the reputations of other Chinese companies which would otherwise represent good opportunities for investment.”
Other reasons for 2018’s delistings included failure to spend funds as outlined in a prospectus, inability to get funds out of China to pay dividends and using artificial means to obtain the minimum shareholder spread for admittance to the ASX.
The ABC attempted to contact all nine of the recently delisted Chinese companies but was unable to reach any official from any of the firms.
An advisor who has helped list Chinese companies in Australia told the ABC the firms often struggled to grasp Australia’s accounting standards and had trouble producing financial statements.
Beijing also tightened foreign exchange controls to help arrest a fall in the yuan and stop the rush of wealth out of China, making it harder for Chinese companies to access funds to pay dividends and auditors.
ASX tightens admission rules
In 2016, Sino Australia Oil and Gas was another that ran into trouble.
The Federal Court found the company and its former chairman Tianpeng Shao had breached several sections of the Corporations Act through a series of misleading statements, including making false representations about patents.
“The failure by Mr Shao to ensure that he could understand, even in the most basic sense, the content of the documents he was signing was a breach of his director’s duties,” the judge said.
ASX listing requirements
|Admission criteria||General requirement|
|Number of shareholders||Minimum 300 non-affiliated investors @ $2,000|
|Free float||20 per cent|
|Company size (profit test)
|$1 million aggregated profit from continuing operations over past 3 years + $500,000 consolidated profit from continuing operations over the last 12 months|
|Company size (assets test)||$4 million net tangible assets or $15 million market capitalisation|
The ASX said it had made changes to help address many of the issues it had faced with companies from emerging markets.
“Over the past five years, ASX has tightened its admission rules, guidance and processes, particularly around the minimum spread of investors and minimum free float of shares, to address the challenges presented by companies from emerging markets, including China,” an ASX spokesman said.
“We have also introduced a pre-vetting process for all admissions that especially focuses on the governance issues with applicants from emerging markets and their reasons for seeking a listing in Australia.”
Despite the recent issues with Chinese firms, the ASX said it was important to emphasises it was open to engagement with China and had relationships with the country in a range of areas.
Aside from governance issues, business advisors say there are other problems associated with Chinese companies on the ASX.
“If you look at Chinese companies as a whole, they seriously underperform in terms of where their share price is now compared to what is was when they listed,” Mr Beer said.
“If Chinese shares went up, we wouldn’t have the problems that we’ve had for the last couple of years.
“There tends to be a serious distrust of Chinese companies in Australia.”
But Mr Beer said it did not mean there weren’t also quality Chinese companies on the ASX.
Advisers said generally the best performers were ones with genuine connections with Australia.
By Ian Burrows and Jason Fang