Shanghai’s new listing venue in doubt after Beijing reins in IPOs
A new fund-raising platform proposed for Shanghai that would have helped technology and fast-growing companies take off looks to be stalled on the runway after Beijing closed the window on domestic flotations at the weekend.
The Strategic Emerging Industries Board aimed to bridge the funding gap between the main boards and Shenzhen’s ChiNext market, a Nasdaq-style platform made up of small-cap technology and healthcare companies, as part of the authorities’ plan to establish a multi-layered capital market that would make companies less reliant on banks loans.
“Beijing’s latest regulatory grip on domestic IPOs may lead to a halt on Shanghai’s proposed new listing venue, which was endorsed by senior China Securities Regulatory Commission (CSRC) officials early last month,” said Edward Au, a partner at accounting firm Deloitte. “The new platform in Shanghai was expected to take innovative companies with a special voting rights structure or different governance standards, which I think would be unprecedented for the Chinese capital markets.”
The longer-term question is whether the public buy the idea
Market-watchers has expected the new board to be launched in April next year, alongside a shift from an approval-based system for initial public offerings to a “registration system”, commonly used in mature markets such as the United States, where issuers and investors decide the pricing of shares.
The launch is now likely to be deferred indefinitely. On Sunday, after 28 companies said they were suspending IPOs due to market conditions, the CSRC said “the number of IPOs and the fundraising size will be greatly reduced” in future.
“No one would be surprised by a Beijing decision to put the agenda on hold,” Au said.
The Shanghai and Shenzhen composite indexes have dropped 32 per cent and 40 per cent respectively from their June 12 peaks.
CSRC chairman Xiao Gang told a forum in June it planned to “speed up the development of domestic capital markets, paving the way for new funding channels to small and medium-sized technology companies”.
“Revising our existing listing rules can spur competition between Shanghai’s new funding platform and Shenzhen’s ChiNext board,” he said.
A wave of big financial technology companies, including Alibaba’s Ant Financial and video-streaming company iQiyi, were said to be among the first batch of listing candidates for the Strategic Emerging Industries Board, together with relistings of US-listed mainland companies such as dating app Momo, which listed on Nasdaq in December. Ant Financial, which owns online payment platform Alipay and internet fund Yu E Bao, completed a round of funding in June that valued the Jack Ma-controlled company at US$45 billion to US$50 billion.
Keith Pogson, a senior partner at accounting firm EY, said: “The longer-term question is whether the public buy the idea, literally buy the idea, and participate in the new market without cannibalising the old.
“The struggles have been caused by the large amount of sometimes heavily leveraged retail investors. In reality, getting a mixture of longer-term institutional investors looking at real market fundamentals mixed with a market and investors that also are willing to take risk and stimulate entrepreneurism in the domestic market is the necessary step forward.”
