China's Reverse-Merger Candidates Plunge on Regulatory Scrutiny

Chinese companies seen as candidates for reverse mergers plunged for a second day after the nation’s securities regulator signaled that the trend of delisting in the U.S. to sell shares in the mainland at higher valuations would come under greater scrutiny.

The China Securities Regulatory Commission said on Friday it’s conducting “in-depth” analysis of how companies returning to Chinese exchanges via initial public offerings or mergers and acquisitions would impact the stock market. In a March report, Haitong Securities Co. listed small capitalization and low return-on-equity and debt as among the key criteria for selecting a shell company. A Bloomberg-compiled index of 25 companies based on this criteria fell 6.4 percent at 2 p.m. in Shanghai, bringing a two-day loss to 12 percent.