Chinese regulator halts GP listings on New Third Board
China’s securities regulator has suspended listings and fundraising by domestic private equity firms on the National Equities Exchange and Quotation (NEEQ) system, also known as the New Third Board.
"PE firms' fundraising activities have been fairly frequent since the start of this year. The size and investment of the raised funds is of concern and being questioned," Xinghai Fang, vice chairman of China Securities Regulatory Commission (CSRC), said in a media briefing on December 25.
"Therefore, we will enhance regulation on this kind of PE firm, by halting listing and fundraising activities in the national equities exchange system. We then plan to investigate their use of the proceeds."
Huo Da, director of CSRC's marketing department, added that the New Third Board was established to serve as a financing platform for Chinese small and medium enterprises (SMEs), particulalry those in the technology space. It is not intended to serve as a stepping stone for the main board listings in Shanghai and Shenzhen, he emphasized.
The CSRC will carry further investigations on listed PE firms if the funds previously raised from the board have been channeled into real economy.
Last year, JD Capital became the first Chinese PE firm to list on the New Third Board. The firm wants to list on Shanghai's main board through a reverse merger with publicly-traded property developer Jiangxi Zhong Jiang Real Estate. Other local PE firms on the New Third Board include China Science & Merchants Investment Management Group (CSC Group), Shenzhen Cowin Capital and ChinaEquity Group.
Some of these stocks are seen as vastly overpriced. For example, JD Capital, which manages approximately RMB30 billion ($4.6 billion) in assets, has reached a market capitalization of RMB100 billion, which is on par with global PE firm The Blackstone Group.
In September, CSC Group said it planned to raise RMB30 billion through the New Third Board. The company has been actively buying shares in the secondary market rather than investing in private companies.
The ban will disappoint some private equity firms still seeking a listing. Chinese early-stage VC firm Innovation Works, CITIC Capital and Legend Capital all announced over the last two months that they had applied to list on the board.
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