China signals easing of listing rules for tech companies

While various government agencies have expressed a desire to see new economy businesses represented in the public markets – a framework for Chinese Depository Receipts (CDRs) through which overseas listed companies could offer shares domestically was released earlier this year – the decree issued by the State Council on September 26 represents the first official endorsement of WVR.

The Opinion on Supporting High Quality Development of Innovation and Entrepreneurship listed nine policies aimed at accelerating the development of technology and innovative companies, as well as start-ups. They range from speeding up the approvals process for administrative issues to facilitating access to the capital markets.

Specifically, the government plans to “expand fundraising channels” for the companies, including encouraging those that “have potential but are yet to turn profitable” to list on the A-share market. It will also allow some technology companies to have WVR structures, without elaborating on the qualification criteria.

Introducing WVR would place mainland bourses in direct competition to the Hong Kong Stock Exchange, which embraced the structure earlier this year with a view to luring large Chinese technology companies. Hong Kong lost out on Alibaba Group’s $25 billion IPO in 2014 because it refused to compromise on the ownership issue.

Following the reform, the likes of Xiaomi and Meituan-Dianping have listed in Hong Kong, raising $4.7 billion and $4.2 billion, respectively. However, WVR is only open to innovative companies with market capitalizations of at least HK$40 billion ($5.1 billion). Alternatively, the minimum market cap can be HK$10 billion if annual revenue is HK$1 billion or more.

China has set a similarly high bar for CDRs. Listed companies seeking approval must have a market cap of at least RMB200 billion ($29 billion), while their unlisted counterparts should be valued at more than RMB20 billion and have an annual operating income of RMB3 billion. In June, Xiaomi received approval to issue CDRs but the plan was shelved due to a failure to agree terms with local regulators.

Under the new rules issued by the State Council, companies in the biotech and technology sectors can expect to receive expedited IPO approvals. At present, the securities regulator imposes strict controls on the flow of listings in Shanghai and Shenzhen. Scrutiny of IPO candidates has intensified in the last year, with 105 applications rejected or deferred in 2017, compared to 114 such in the five years through 2016.

The decree also emphasizes there will be no change in the overall tax rate for start-ups, while steps will be taken to reduce social welfare insurance premiums paid by these companies.

These moves come after the benchmark Shanghai Composite Index dropping to its lowest level in two years in June, dragging the market into official bear territory. Overall, Chinese stocks lost about $1.6 trillion in value between January and June.

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• Topics
• Greater China
• Regulation
• IPO
• China
• regulation
• weighted voting rights (WVR)
• Chinese Depository Receipts (CDRs)