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Recently, many listed companies have issued announcements related to shareholders' illegal reduction of holdings. On July 24, Enjie Co., Ltd. (002812.SZ) issued four announcements in a row, stating that the company's actual controller and its persons acting in concert apologized to investors for the illegal reduction of holdings and promised to repurchase; the day before, Fuda Alloy (603045.SH) also issued an announcement stating that the actual controller's person acting in concert, Chen Songyang, illegally reduced the company's shares due to erroneous operations.

According to incomplete statistics, this year only 13 listed companies disclosed notices of shareholders illegally reducing their holdings, while last year there were 47. Judging from the data, under the influence of the new regulations on reducing holdings, the illegal reduction of holdings by shareholders of listed companies has been curbed to a certain extent.

Shareholders of 13 companies illegally reduced their holdings

Since the beginning of this year, 13 listed companies have disclosed illegal reduction announcements, including well-known companies such as Enjie Co., Ltd. and China Energy Engineering (601868.SH). In the apology announcements issued for illegal reduction, all the violators of the companies promised to buy back the shares.

The worst of them is Enjie Co., Ltd. Since its listing, the actual controller and its associates have frequently reduced their holdings in violation of regulations over the past seven years, and have been "showing off" by selling high and buying low.

It is understood that the chairman of Enjie Co., Ltd., Paul Xiaoming Lee (Li Xiaoming, American nationality), is actually controlled by the Li Xiaoming family (family members are Paul Xiaoming Lee, Yan Ma, Sherry Lee, Li Xiaohua, Yanyang Hui, Jerry Yang Li). Yuxi Heyi Investment Co., Ltd. (hereinafter referred to as "Heyi Investment") and Yuxi Heli Investment Co., Ltd. (hereinafter referred to as "Heli Investment", before September 27, 2021) are both companies controlled by the actual controller, constituting a relationship of concerted action.

Enjie Co., Ltd. was listed in September 2016. At that time, Li Xiaoming's family directly held 20.58% of the shares, Heyi Investment held 27.58% of the shares, and Heli Investment held 3.73% of the shares. The actual controller and its affiliates held a total of approximately 51.9% of the shares.

After that, the actual controller and its concerted actors reduced their holdings. Combined with Enjie's private placement and convertible bonds, the actual controller and its concerted actors' cumulative equity change ratio reached 5.01% by the end of March 2021. According to relevant regulations, the actual controller and its concerted actors need to fulfill their announcement obligations in a timely manner and stop buying and selling listed company stocks. However, they did not follow the relevant regulations and continued to reduce their holdings. Subsequently, the actual controller and its concerted actors' cumulative equity change ratio reached 6.13%.

What is even more infuriating is that the actual controller of Enjie Co., Ltd. and its persons acting in concert not only reduced their holdings, but also "showed off" their operations by selling high and buying low. In the second quarter of 2022, Enjie Co., Ltd.'s price rose all the way to about 60% under the stimulation of good news. During this period, the actual controller and its persons acting in concert reduced their holdings, selling a total of 0.9% of the company's shares. Subsequently, Enjie Co., Ltd. began to plummet, and by July 2023, the cumulative decline exceeded 60%. At this time, the actual controller and its persons acting in concert increased their holdings of the company's shares by 0.21% at a low level.

In response to a series of violations by the actual controller of Enjie Co., Ltd. and its joint actors, the Yunnan Regulatory Bureau issued the "Administrative Supervision Measures Decision" on July 24, taking administrative supervision measures against Li Xiaoming's family, Heyi Investment, and Heli Investment, ordering them to correct the violations and issuing warning letters, and at the same time recording them in the securities and futures market integrity file.

Director of a listed company lost more than 20,000 yuan by speculating in his own stocks

Among many cases, there is a more ridiculous company, Lanwei Medical (301060.SZ). The company's director and deputy general manager Mao Zhisen was suspected of short-term trading and illegal share reduction and received a "Warning Letter" issued by the Shanghai Regulatory Bureau.

According to the "Warning Letter", Mao Zhisen bought 16,300 shares of the company's stock on March 21, 2024, with a transaction amount of 237,100 yuan, and sold 9,000 shares of the company's stock on March 26, 2024, with a transaction amount of 106,300 yuan, and he did not disclose it in accordance with relevant regulations. The above actions are suspected of short-term trading and constitute illegal reduction of holdings.

What's even more ironic is that according to the first-in, first-out principle, Lanwei Medical's Mao Zhisen's profit from this short-term transaction was -23,616 yuan. In other words, the director and deputy general manager of a listed company actually lost more than 20,000 yuan by speculating on his own stocks.

Lanwei Medical's self-examination results showed that Mao Zhisen's share purchase and sale this time was not within the window period, nor did he use insider information to trade for profit.

Under the new regulations, illegal reduction of holdings will be restricted

In fact, illegal reduction of holdings is a major problem in the capital market. Driven by profit, there are always major shareholders of listed companies who can't hold back and use various methods such as block trading, refinancing and technical divorce to reduce holdings, which not only infringes on the interests of investors, but also disrupts the trading order of the market.

All along, regulatory authorities have been increasing their efforts to crack down on illegal share reductions. In August 2023, the China Securities Regulatory Commission further regulated share reductions and imposed strict restrictions on major shareholders from aspects such as price drops, net losses and dividends. In March 2024, the China Securities Regulatory Commission issued the "Opinions on Strengthening the Supervision of Listed Companies (Trial)", strictly regulating the share reduction behavior of major shareholders and effectively preventing detour share reductions. In May this year, the China Securities Regulatory Commission issued the "Interim Measures for the Management of Share Reductions by Shareholders of Listed Companies", which clearly stated that measures such as ordering repurchases and paying the price difference to listed companies can be taken for illegal share reductions.

The above measures will undoubtedly put a "tight ring" on some shareholders of listed companies, restraining their illegal share reduction behavior and purifying the market environment.

iFinD data shows that a total of 47 shareholders of listed companies illegally reduced their holdings in 2023. From the data, it can be seen that the number of companies that illegally reduced their holdings this year has dropped significantly.

Under the new rules, the illegal reduction of holdings by major shareholders of listed companies will be curbed. Ordering the reduction parties to repurchase the corresponding shares can increase the buyer power in the market, reverse the market supply and demand relationship, help repair the stock price to a certain extent, and reduce the harm to small and medium-sized investors.

However, as an innovative measure, the mandatory repurchase is still in the exploratory stage and needs to be continuously patched and improved. For example, there are no more detailed restrictions on the repurchase period and repurchase method of the party reducing holdings. How to prevent the phenomenon of promising to actively repurchase but delaying again and again; how to prevent the party reducing holdings from deliberately bypassing the centralized bidding transaction when repurchasing stocks, and instead using the agreement to accept the transfer and other methods to conduct "black box operations" to damage market fairness. The shortcomings still need to be continuously improved and "patched" as soon as possible.