Major breakthroughs are seen in newly released regulations for the highly anticipated science and technology innovation board to be launched at the Shanghai Stock Exchange, providing more financing opportunities to technology-driven startups.
With two months’ preparation, the China Securities Regulatory Commission and the Shanghai bourse released regulations on their respective websites on Jan 30, outlining eased access for listing with an experimental registration-based initial public offering system for the new tech board.
The Shanghai bourse will be responsible for auditing companies’ IPOs, and the process will not take longer than six months. The commission will be in charge of the registration of new shares issued at the new board.
The new regulations say companies that have not yet reported a profit will be able to go public on the new tech board. Before that, companies had to report net profits of at least 30 million yuan ($4.4 million) for three consecutive budget years to qualify for the main board of the A-share market.
Also, a dual-class structure is likely to be introduced, observers say. No price fluctuation limit would be set for the first five trading days of a new share. The daily price fluctuation limit would be increased to 20 percent, while the limit normally is 10 percent, according to current A-share trading rules.
Companies specializing in industries such as information technology, high-end manufacturing, new materials, new energy, environmental protection and biomedicine will be given priority on the new board.
Regulators will solicit public opinion on the rules for possible amendment until Feb 20. The first companies would submit an IPO application at the new tech board in early March at the earliest.
“The registration system will become a milestone to advance China’s capital market reform as it poses higher information disclosure requirements and stresses the responsibility of the issuer and brokerages,” said Zeng Yan, chief strategist at Huatai Securities.
Li Xunlei, chief economist at Zhongtai Securities, said the new board will help remedy the systematic defects that have beset the A-share market for nearly three decades. While profitability was the top criterion for A-share listed companies, things were based primarily on the numbers.
But some good companies missed their chance to go public because they could not generate profits in the short term. With the new board, qualified companies can be listed in the domestic market rather than seeking opportunities in overseas markets, he said.
Citic Securities estimated that there will be around 150 companies listed on the new tech board in 2019, with the total financing amount reaching up to 100 billion yuan.
While the new board will relax regulations for IPOs, the central regulator has introduced more stringent rules for delisting. Companies that don’t meet the standards for trading volume, share prices or sustained operational ability will be delisted. No trading suspension would be provided in such cases.
The new tech board is likely to have an effect on the ChiNext board in Shenzhen because the two boards attract similar investors who mainly look for emerging companies, said Yan Hong, deputy head of Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University. But in the long term, the quality of the listed companies on the ChiNext board will be increased as a result of competition, and the registration system is also likely to be introduced at ChiNext, he said.
