Translated English Title

Xiong Jinqiu

Recently, a certain listed company on A-share released an announcement, and due to the actual repurchase amount being relatively low, the Shanghai Stock Exchange issued a notice criticizing the company and relevant responsible individuals. I believe that by examining this case as a mirror, further improving the repurchase rules of listed companies is necessary.

It was found that on June 18th, 2024, the company announced its plan to use self-financing funds not less than 2000 million yuan and not more than 4000 million yuan to repurchase shares through a concentrated bidding method. The repurchase price shall not exceed 1.5 yuan per share, and the repurchase period shall not exceed six months. On December 19th, 2024, the announcement showed that by December 17th, the cumulative repurchase reached 273.59 million shares, using funds totaling 263.76 million yuan, with an actual repurchase amount of only 13.19% of the total repurchase plan. The Shanghai Stock Exchange believes that the company's actual repurchase amount is relatively low and does not meet the reasonable expectations formed by investors, violating relevant regulations.

The Shanghai Stock Exchange has guidelines for listed companies to repurchase shares, such as "Self-regulatory Guideline No. 7 - Repurchase of Shares" (referred to as "Guidelines"), which clearly stipulates the basic requirements, implementation procedures, and information disclosure, handling, and daily supervision of share repurchases. However, there are still listed companies that release large-scale repurchase information, but do not actually fulfill their obligations, then find various excuses. The reasons for the company's failure to disclose its repurchase plans include prioritizing funds for daily operations and rapid increases in stock prices exceeding the upper limit of the repurchase price range.

I recommend that the existing rules or regulations related to share repurchases be further improved from four aspects:

First, clarify the minimum threshold for disclosure of repurchase announcements. The Guidelines require listed companies to clearly specify the number of shares or total amount of funds to be repurchased in their repurchase plans and not exceed the lower limit by more than one times; however, there is no clear standard for the lower limit, which may allow listed companies to release a plan to repurchase only one share, which has no meaning and increases information costs. It is recommended that the minimum threshold be set at 0.5% or higher of the total number of shares outstanding, below which it would have little impact on the company's stock price and no need for temporary disclosure.

Secondly, relax the upper limit of the repurchase price range. The Guidelines require that if the repurchase price range is above the average trading price of the company's shares over the past 30 days as determined by the board of directors before the repurchase plan is implemented, a full explanation shall be provided in the repurchase plan. In practice, some cases have upper limits close to the current market price, unless there will be a significant decline in stock prices in the future, it may not be possible to implement the repurchase plan. I believe that only by allowing the proposed repurchase price range to have a relatively large buffer zone can the repurchase transaction not be abandoned due to market prices exceeding the upper limit; it is recommended to cancel the requirement for an explanation of the reasonableness of the repurchase price and to clarify that the upper limit shall not exceed 130% of the average trading price.

Thirdly, require listed companies to establish a special account for repurchasing shares. The Guidelines require listed companies to use a dedicated account to repurchase shares. It is recommended that listed companies establish a special account for repurchasing shares only when the funds reach the minimum amount of the planned repurchase (if there is a specific lower limit, it shall be based on the closing price of the previous trading day). In addition, strengthen information confidentiality and prevent insider information from being leaked.

Fourthly, prohibit major shareholders, directors, and supervisors from reducing their stakes during the repurchase period. The Guidelines provide for four types of share repurchases, including "reducing registered capital," "using shares for employee stock ownership plans or equity incentives," and "converting listed company-issued convertible bonds." However, there is no similar prohibition on the other three types of repurchase. Allowing major shareholders, directors, and supervisors to reduce their stakes during any type of repurchase may lead to insider trading and even market manipulation. It is recommended that a blanket ban be imposed on major shareholders, directors, and supervisors from reducing their stakes during the repurchase period.

The opinions expressed in this column article are solely those of the author.