China launches its biggest OTC board to aid SME financing
China has launched its biggest over-the-counter equity trading platform in Shenzhen, aimed at increasing access to finance for small and medium-sized enterprises and offering much looser listing requirements than the country’s main exchanges.
The move is part of a series of policies to ease financing difficulties for SMEs, which authorities see as key to transforming China’s growth model away from reliance on capital investment and promoting growth in technology and service industries.
The Qianhai Equity Exchange started with 1,200 firms making their debut, easily surpassing the so-called New Third Board, a network of four regional markets, the largest of which is based in Beijing’s Zhongguancun technology district.
Only about 200 firms had listed on the New Third Board as of the end of last year, despite pilot projects underway since 2006.
Of the new Qianhai exchange firms, 40 per cent are tech firms from sectors such as computer, software and information technology. Around 80 per cent are registered in Shenzhen.
Fundraising costs for listed companies on the Qianhai board will be one tenth of the costs of the main boards, the chairman of the exchange, Hu Jizhi, was quoted as saying by local media.
Hu said the exchange is guided by the principal of the “ten nos”. These include no administrative approval required for listing, no changes required in corporate structure, no custodial fees, no mandatory information disclosure, no restrictions on trading hours, and no strict division between primary and secondary markets.
This contrasts sharply with China’s main stock exchanges in Shanghai and Shenzhen, where approvals for new initial public offerings have been frozen since October.
Listings on China’s main stock exchanges were suspended after the securities regulator ordered underwriters and auditors to review the accuracy of IPO application materials and investor complaints that new IPOs were depressing prices of existing shares.
Other steps authorities have taken to help SMEs gain access to financing include a high-yield bond market launched last June.
In March this year, four local governments issued bonds to fund SME loans. Banking authorities have also ordered banks to increase SME lending and reduced the amount of capital they must hold against such loans.
CITIC Securities is the largest shareholder in the Qianhai exchange with a 27 per cent stake, followed by unlisted Guosen Securities with 22 per cent and unlisted Essence Securities with 18 per cent.
Firms wishing to list on the exchange must meet one of the following requirements, according to the exchange website:
- net profits of at least 3 million yuan ($489,300)
- operating revenue of at least 20 million yuan in the prior 12 months
- operating revenue of at least 20 million yuan in the prior 24 months plus an annual growth rate of at least 30 per cent
- net assets of at least ten million yuan and revenue of at least five million yuan in the previous 12 months
- bank borrowings or institutional equity investment worth at least one million yuan over the prior 12 months.