Filing exposes risks facing relisted stocks

Shares of Shanxi Guanlu Co Ltd took a hit Monday thanks in large part to the warning notice it issued following its relisting on February 8, a development analysts say underscores the dangers surrounding restructured companies bearing delisting risk warning (*ST) marks.

In a statement filed with the Shenzhen Stock Exchange Monday, Shanxi Guanlu stated that since its share price registered a substantial increase on the day of its relisting, for the sake of investors it chose to outline the risks facing the company. A total of 14 potential risk sources were identified in the notice, including changes in the company's business, unrecovered losses, uncertainties regarding profit estimates, macro-economic fluctuations, industry policy adjustments, tougher environmental protection requirements and movements in raw material prices.

Following the notice, the company's share price slumped by 4.97 percent to close at 18.72 yuan ($2.99) Monday, a sudden loss that stands in sharp contrast to the 115.3 percent rise it experienced during the previous trading day.

Shanxi Guanlu - which had been suspended from trading since March 18, 2011, after suffering annual losses for three consecutive years from 2008 to 2010 - is one of the 12 mainland-listed ST firms that saw its shares relisted on the last trading day prior to the Chinese New Year.

"These 12 got relisting nods from securities regulators mainly due to successful restructurings, but that doesn't guarantee these companies have become stronger and will show improvements in the future," Li Daxiao, director of research with Yingda Securities, told the Global Times Monday.

"Also, as there may be a lot of speculation surrounding these companies, investors should be cautious about buying into those stocks," he went on to say.

It is because of such speculation that most of the 12 relisted shares rallied on the last trading day of the Year of the Dragon. For instance, Yueyang Hengli Air-Cooling Equipment Inc surged 373 percent to 5.30 yuan that day; while Zhenxing Biopharmaceutical & Chemical Co jumped 282 percent.

Li also mentioned that securities authorities seemed to have eased requirements on relisting approval with this last group of companies.

"The regulators may have given their nods based on old requirements because all of these companies had faced delisting long before the issuance of new delisting rules," Zhou Junsheng, an economic commentator, told the Global Times Monday. "But in the future, regulators can be counted on to strictly implement the new rules."