Xiongan firms could skip IPO queue under proposed ‘extraordinary financial measures’

North China’s Hebei province has proposed a VIP fast track mechanism that would enable local firms to jump a line of 500 companies awaiting approval for initial public offerings (IPO), according to an official document issued by the provincial financial affairs department on Tuesday, obtained by the South China Morning Post.

In a bid to facilitate plans to build the Xiongan New Area, Hebei’s finance affairs office said it would use “extraordinary financial measures” to push for the development of the special economic zone, including applying for a fast-track IPO channel for local companies, asking for special credit support from the central bank, and setting up all kinds of financial institutions branded with “Xiongan”, the document said.

The plan to develop three sleepy, backwater counties into a thriving, futuristic city just south of Beijing which could relieve overcrowding and pollution in the capital, was announced by the central government early this month. It was referred to as a “thousand-year” plan in a circular issued by Beijing.

“We will coordinate with the China Securities Regulatory Commission (CSRC) and ask for a fast track for public listing for companies based in Xiongan and surrounding regions,” the provincial financial affairs office said in the document.

China’s IPO market is notorious for the exceptionally long review process.

More than 500 companies were in a queue to have their IPO applications reviewed by the CSRC by early April, official figures shows.

“We will also coordinate with the People’s Bank of China (PBOC), and ask for credit support to help local infrastructure construction, ecological management, high-end and high-tech industries,” the document went on to say.

It also proposed relocating the headquarters of several important financial institutions to Xiongan, including the Beijing-based National Equities Exchange and Quotations, China’s over-the-counter market for small and medium companies.

What’s more, the document also sets out plans to ask for financial licenses from regulators to set up banks, trust companies, securities companies, asset management and insurance firms branded “Xiongan”.

It remains to be seen whether China’s central financial regulators will accept the full scope of the proposals from Hebei.

Felix Ruan, the director of a state-backed private equity fund based in east China’s Jiangsu Province, said the authority should stay alert to the possible overcrowding of financial institutions in the region.

“They should be aware that financing can support the real economy, but can also produce bubbles. Let’s pray Xiongan does not become another playground for people competing for precious administrative resources or those looking to make a quite profit through political connections, he said.

Xiongan has a current population of about 1 million and that could balloon to 6.7 million over the next decade, under the most-optimistic scenario projected so far, by Morgan Stanley, as new residents and workers follow industries into the area.

State-owned enterprises, universities, hospitals, research institutions and less-important national organisations are expected relocate to the new area in coming years.

The CSRC has a track record of making rule revisions in a bid to respond to such politically driven initiatives.

Last September, it issued new rules to fast-track public issuances of stocks and bonds by companies registered in impoverished regions, with the aim of supporting local industrial development, as it responds to President Xi Jinping’s call for further poverty alleviation policies.

The new rules also allow companies to skip the IPO queue, if they have operated and paid income tax in an impoverished area for three years, and are registered in those areas.

Those paying at least 20 million yuan (US$3 million) in taxes to a local government over the past year and do not change their place of registration for three years after listing, with also be lifting up the list.

There were 592 impoverished counties identified by the State Council’s leading group on poverty alleviation in 2012.