China tech board makes volatile debut

Numerous VC firms have interests in the 25 businesses selected to pilot a US-style board that features a registration-based rather than an approval-based listing system, permits weighted voting rights, and is open to a wider range of applicants, including pre-profit companies. Shenzhen Capital Group and Green Pine Capital Partners each said they were invested in four of the 25, while Everest Venture Capital has backed three.

There is some crossover in these holdings. Shenzhen Capital and Everest are both backers of artificial intelligence chipmaker Montage Technology; Everest and Green Pine are among the investors in ArcSoft Technology, a visual recognition software provider for smart phones, and Beijing Tianyi Shangjia New Material, a components manufacturer for high-speed trains; and Shenzhen Capital and Green Pine have stakes in Shenzhen Guangfeng Technology, which develops laser display technology.

Alongside imaging sensor specialist Yantai Raytron Technology and high-performance superalloys producer Western Superconducting Technologies – backed by Green Pine and Shenzhen Capital, respectively – they fit the desired profile for Star Market constituents. Regulators said from the outset that they would favor companies involved in new generation IT, high-end manufacturing, new energy and materials, energy-saving and environmental protection, and biotech.

Chipmaker Anji Technology posted the biggest first-day gain of 400%, with three more companies – including Montage Technology – surpassing 200% - and a further 12 rising more than 100%. There are no limits on share price movements during a stock’s first five days of trading on the Star Market. Standard practice on the Shanghai and Shenzhen bourses is for first-day gains to be limited to 44% and 10% thereafter.

As of July 4, 141 companies had applied to list on the Star Market and 31 had received approval. Shenzhen Capital said it had seven more companies engaged in the application process: one is at the registration stage, five are under inspection, and one has been approved. By the 11th day of trading, there are expected to be 30 listed companies and the Shanghai Stock Exchange will launch an index. There will ultimately be 50 members in total.

To qualify, a profitable company must achieve a market capitalization of at least RMB1 billion ($149.2 million) and have generated either at least RMB50 million in profit during the last two years or reported revenue of RMB100 million for the previous year. For businesses that have yet to return a profit, minimum market capitalization and revenue requirements range from RMB1.5-3 billion and RMB200-300 million.

Zero revenue companies are admissible if they have a market capitalization of no less than RMB4 billion and their products are sufficiently advanced. A biotech player, for example, must have at least one drug approved for phase-two clinical trials.

Overseas companies – whether unlisted red chip enterprises or businesses that already trade on foreign exchanges – can join the Star Market if they meet technology and growth criteria, and achieve a market capitalization of at least RMB10 billion. The requirement is halved for companies with RMB500 million in annual revenue. The same provisions apply to companies with weighted voting rights, although they – and businesses with variable interest entities (VIEs) – are subject to additional disclosure requirements.

The registration-based system is intended to speed up the listing process, which can take upwards of six months on the Shanghai and Shenzhen main boards. Some companies wait years to go public. The Star Market is obliged to respond to applications within five days of receipt, although there is the option of launching lengthier reviews.

Steps have also been taken to restrict retail investor exposure to the market given the lighter touch regulation and less proven business models. Individuals are subject to requirements such as having at least RMB500,000 in their trading accounts and investment track records of two years or more. Companies are responsible for ensuring their investors are suitable.

The Star Market, first proposed last November by President Xi Jinping, is Beijing’s latest attempt to encourage domestic technology companies to list at home instead of overseas. IPOs on US exchanges have historically been the preferred option, but Hong Kong has begun to attract some high-profile offerings after loosening restrictions on companies that are pre-profit and have dual-class share structures.

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• Topics
• Greater China
• IPO
• Technology
• Regulation
• China
• TMT
• CSRC
• Green Pine Capital Partners
• Shenzhen Capital Group
• Exit