Rules to be relaxed to help mainland firms list in Hong Kong
Securities regulator to lower profit requirements in bid to ease fundraising pressure on mainland
Daniel Ren in Shanghai and Ray Chan
The mainland securities regulator, in an apparent effort to ease fundraising pressure on the domestic market, plans to encourage more companies to float shares in Hong Kong by lowering the current profit requirements.
The China Securities Regulatory Commission (CSRC), which has been struggling to buoy the weak mainland share market, is expected to fast-track approvals for mainland firms looking to launch initial public offerings (IPOs) in Hong Kong, two sources said.
The regulator suspended domestic market offerings in early October. At present, 800 listing hopefuls are lined up and investors, wary of a flood of new shares, are reluctant to buy equities despite the market's cheap valuation. This latest move reflects Beijing's determination to direct a flood of capital-hungry companies out of the mainland.
Mainland companies cannot seek share offerings in Hong Kong unless they get prior approval from the CSRC under so-called preliminary review procedures.
The mainland regulator usually advises listing applicants through private discussions whether to chase a domestic or an overseas listing.
And not all companies that meet Hong Kong's listing requirements can get the nod from the mainland regulator to proceed. To ensure some quality control, the CSRC sets a higher threshold for mainland firms looking to list in Hong Kong than for domestic share issues.
The Hong Kong exchange requires a listing applicant to post a combined net profit of no less than HK$50 million cumulatively over the past three years. But the CSRC won't approve any company to list in Hong Kong unless it has earnings of at least 60 million yuan (HK$73.87 million) in the past year alone.
While the CSRC will lower its own standard in the preliminary reviews, it is unclear if Beijing will follow suit, according to people familiar with the situation.
The official China Securities Journal reported yesterday that CSRC chairman Guo Shuqing and Hong Kong authorities had had discussions, and both sides are in favour of easing the profit requirement.
Still, "those companies that the CSRC wants to direct to the Hong Kong market may not be interested," said Ray Lu, an investment manager at Hotung Ventures. "After all, the listing costs are higher in Hong Kong and many firms are worried about tight regulation and supervision there."
Ironically, while the CSRC plans to ease policy on Hong Kong-bound listings, it plans to tighten the approval procedure in the domestic market when the temporary ban is lifted on offerings in the domestic market, the sources said. That is unlikely to happen until after the Lunar New Year holiday in mid-February.
At that time, the regulator plans to reject applicants that cannot convince the review committee they can sustain their earnings in the coming years.