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The internal and external elimination of the fittest in the A-share market is accelerating. On August 2, *ST Asia Star (600213.SH) announced that the company was trying to voluntarily delist through privatization.

The announcement stated that in order to fully protect the interests of small and medium-sized investors, *ST Asiastar's controlling shareholder Weichai (Yangzhou) Investment Co., Ltd. (hereinafter referred to as "Weichai Yangzhou") intends to provide other shareholders with cash options to complete the company's delisting from the Shanghai Stock Exchange Main Board and transfer it to the National Equities Exchange and Quotations. The company will be suspended from August 5.

Regarding the price of the cash option, *ST Yaxing announced on the evening of August 4 that it would set up a shareholder protection mechanism for all small and medium shareholders, based on the higher closing price of the company's previous 30 trading days and the previous closing price of 5.84 yuan per share, and further premium on this basis. The final price will be given when the company submits an application for resumption of trading.

The reporter learned that due to the relatively high overall valuation level and good liquidity of Shanghai and Shenzhen A-shares, Shanghai and Shenzhen A-share companies rarely voluntarily delist. *ST Yaxing is another company that chose to voluntarily delist due to market factors after Jingwei Textile Machinery (000666.SZ).

However, in terms of process, the delisting of *ST Asia Star still needs to be submitted to the company's special meeting of independent directors, the board of directors, and the shareholders' meeting for deliberation (in addition to being approved by more than two-thirds of the valid votes held by all shareholders attending the shareholders' meeting, it must also be approved by more than two-thirds of the valid votes held by small and medium shareholders attending the meeting), and obtain review and approval from relevant state-owned assets supervision and management agencies and approval from the Shanghai Stock Exchange.

The risk of financial delisting is high

Although the delisting of *ST Yaxing was initiated by the controlling shareholder, on the other hand, the company is indeed facing a high risk of financial delisting.

According to information, *ST Asiastar was originally referred to as Asiastar Bus, and is a long-established domestic city bus and long-distance bus manufacturer. In recent years, with the increase in the proportion of private cars, the three-dimensionalization of public transportation, and the intensified competition in the bus industry, *ST Asiastar has seen a decline in profits since 2017.

From 2020 to 2023, *ST Yaxing achieved operating income of 1.879 billion yuan, 950 million yuan, 1.477 billion yuan and 1.210 billion yuan respectively; net profit attributable to shareholders was -158 million yuan, 1.892 million yuan, -196 million yuan and -337 million yuan. As of the end of 2023, the company's total owner's equity was -104 million yuan, the equity attributable to shareholders was -178 million yuan, the total retained earnings in the report was -1.12 billion yuan, the net assets were negative and the short-term shareholder return ability was lost.

The performance forecast disclosed by the company recently shows that *ST Asia Star expects to achieve operating income of 1 billion to 1.3 billion yuan in the first half of 2024, but the net profit attributable to shareholders is expected to reach -18 million to -27 million yuan. Although the export business increased by 161% to 239% in the first half of the year, a large number of lawsuits caused the company to accumulate a large number of non-recurring losses, and some overseas shipment problems caused the company to still fail to turn losses around in the first half of the year.

If *ST Yaxing fails to completely reverse its losses into large profits in the second half of the year, its net assets may be negative for two consecutive years, causing the company to trigger financial delisting.

Judging from *ST Yaxing’s continuous litigation troubles, the company will still face many difficulties in making a significant turnaround in losses in the second half of this year.

In April this year, *ST Asia Star was required to pay compensation for the purchase of a vehicle due to vehicle failure, with the amount involved reaching 80.814 million yuan, which resulted in the freezing of the company's bank account. In addition, the company has repeatedly been involved in lawsuits due to customers' inability to pay for the vehicle or being sued for compensation for operating losses. According to statistics, in the first half of the year alone, *ST Asia Star had 7 new lawsuits and updated the progress or results of the lawsuits 7 times.

Faced with multiple lawsuits and operational difficulties, *ST Asia Star's ability to restore profitability and return returns to shareholders is nowhere in sight, and the decision to privatize and delist is a helpless one.

“Give up the struggle”

In fact, due to the relatively high overall valuation level and good liquidity of the Shanghai and Shenzhen A-shares, few companies in the two markets choose to voluntarily terminate their listing status for reasons other than restructuring, business adjustments, etc.

Before *ST Yaxing, only a very small number of companies, such as Jingwei Textile Machinery, Shanghai Putian (600680.SH), and Erchong Heavy Industry (601268.SH), chose to delist when the privatization proposers did not have any restructuring and integration arrangements.

Unlike *ST Asiastar, Shanghai Putian and Erchong Heavy Equipment both issued privatization offers at the beginning of the year. Before issuing the privatization offers, both companies had suffered net losses for three consecutive years. Under the premise that the companies basically knew that the financial reports for the new year would continue to be in the red, Shanghai Putian and Erchong Heavy Equipment chose to delist in advance.

In contrast, Jingwei Textile Machinery is very different from the other two companies. The company still maintained profitability in the first quarter of 2023, and its net assets still reached 10 billion yuan, but it chose to delist, setting a precedent for "delisting without delisting risk" in A-shares.

A similar situation also happened to *ST Asia Star. The company had not locked in delisting until the first half of this year, and its operating income had returned to growth. Its negative net assets could still be saved by selling assets and other "shell-keeping" behaviors, and the company's stock price was still far from delisting.

However, *ST Yaxing still resolutely chose to "give up struggling."

There are still variables

The reporter noticed that *ST Asia Star has been experiencing a liquidity crisis since May this year. Since June, the company's average daily trading volume has been as high as 30 million, and as low as less than 6 million. From the latest situation of the company's top ten shareholders, UBS, JP Morgan Chase, Goldman Sachs, Bank of America Merrill Lynch, Barclays and other companies all hold a small amount of shares in the company, and due to liquidity problems, cashing out may become a problem.

It is worth noting that as of the first quarter, except for the controlling shareholder Huai Chai Yangzhou, all shareholders from the second largest shareholder onwards held no more than 0.61% of the company's shares. The company's shareholding structure is in an extremely dispersed state.

Considering that the proposal still needs to be approved by two-thirds of shareholders and two-thirds of small and medium shareholders at the general meeting of shareholders, the company's privatization and delisting may still be uncertain. The price of the cash option will be the key factor in determining whether the company's privatization and delisting will be successful.

"For example, the premium part involved in the delisting of Asiastar Bus is often the result of bargaining between the controlling shareholder and the remaining small and medium shareholders. If the premium price cannot be effectively positioned, it will hinder the delisting." Qu Fang, an investment consultant at Wanlian Securities, told the 21st Century Business Herald reporter.

"Compared with mature capital markets (10% delisting rate), emerging markets have a lower voluntary delisting rate (usually around 2%). This is mainly due to the fact that emerging markets have stronger shell resources and companies prefer to exit by selling shells. In the future, as the number of listed companies in the A-share market increases, the number of exits will inevitably increase. However, compared with passive delisting, methods such as mergers and reorganizations and voluntary delisting are more easily accepted by the market and are more conducive to safeguarding the interests of small and medium-sized investments. For voluntary delisting, it is also necessary to strengthen supervision and formulate systems to protect the interests of investors, and we must not allow a situation where the delisting is just a matter of time," said Qu Fang.