CHINA’S securities regulator will tighten regulations on major restructurings by listed companies to curb speculation around shell companies used for backdoor listings, domestic media reported over the weekend.

    The rules are expected to make it more difficult for companies listed abroad to relist in China after privatization, a trend partly triggered by arbitrage opportunities from the valuation gap between Chinese and overseas stock markets.

    The China Securities Regulatory Commission (CSRC) will bar companies from raising money from external sources in backdoor listings, in a bid to ensure financial strength of the parties involved, domestic media said, citing draft rules published for public feedback.

    Meanwhile, the lock-up period of new shareholders in the restructured listed companies would be extended to 24 months from 12 months, to prevent short-term speculation, the reports said.

    In addition, controlling shareholders cannot sell their listed companies as “shells” if they broke rules or laws during the past three years, the reports said.

    “This is a step forward to get the market back in order, curb excessive speculation and to protect small retail investors,” said Hong Hao, managing director at BOCOM International Ltd.

    “Shell companies’ valuations will be dampened further,” he said, adding that backdoor listings will likely be subject to the same standards as IPOs, which would help the market grow in a healthy manner.

    The move came after the regulator announced the termination of its review of IPO applications for 17 companies submitted between January and May, citing reasons that included unclear capital origins of shareholders, incomplete information disclosure and substantial profit decline or losses. (SD-Agencies)