China’s JD Capital approved to trade on OTC board

It will be the first private equity firm to list on the National Equities Exchange and Quotation (NEEQ), which is also known as the New Third Board. Trading is set to begin next week.

JD plans to issue 5.8 million shares at RMB610 apiece, raising RMB3.54 billion ($567 million) from 142 investors, including 138 institutional investors.

The firm wants to diversify its financing channels by trading on the board, according to a statement. JD Capital has to comply with rules to disclose business operations and financial documents once it is a public company, which will help increase its valuation, it said.

As of the end of October, JD had RMB26.4 billion in assets under management. It had invested RMB15.4 billion in 209 companies across consumer, service, pharmaceutical, agriculture, equipment and material, mining and other emerging industries.

It had exited 24 portfolio companies, earning an IRR of 38.1% on initial investments of RMB1.17 billion.

The firm reached a $150 million first close on its second US dollar-denominated vehicle in March, and is targeting a final close of $200 million.

The New Third Board was introduced in 2006 through pilot programs in Beijing, Tianjin, Shanghai and Wuhan. It serves as a national share transfer system for small and medium-sized enterprises (SMEs), in particular high technology companies. They transfer shares to investors, receiving capital in return.

The board is also seen as an alternative exit channel for private equity firms whose portfolio companies don't meet listing requirements for the Shanghai and Shenzhen's main boards.

The State Council released policy measures in June, noting that it will support the development of the OTC market in a bid to create a multi-layered capital market.

"JD Capital is likely planning to take advantage of the New Third Board to expand its financing channels to meet the financing demands of its average three-five year investment cycle," advisory firm Z-ben wrote in a report last month. "On the other hand, it is also possible that LPs of PE firms are increasingly looking to cash out, which may be a motivation behind JD Capital's move."

The advisory firm also expects more PE firms follow in JD Capital's footsteps, given that requirements for PE firms to list on the New Third Board are very low.

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• Topics
• Greater China
• Renminbi fund
• Fundraising
• China
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