Across The Border

Opinion: Major Chinese techs frustrated at CSRC’s stalling on whether it will allow them easier access to domestic market funding

In the first four months of 2017, some 170 listing applications were approved by the CSRC, an unprecedented pace for mainland stock markets

PUBLISHED : Thursday, 18 May, 2017, 10:56am
UPDATED : Tuesday, 23 May, 2017, 6:47pm

Liu Shiyu, the mainland’s top securities regulator, has yet to fully show its hand over what plans it has to allow larger companies, particularly online technology firms, easier access to market funding.

His China Securities Regulatory Commission (CSRC) has been fast-tracking initial public offering (IPO) approvals since the beginning of this year, in an apparent effort to quench high-growth firms’ thirst for fresh funding.

But large, established online giants such as Ant Financial Services and Zhong An Online Property and Casualty Insurance, are yet to be given the green light to float A-shares on domestic stock exchanges.

“Lofty valuations on the A-share market do appeal to technology firms,” said He Yong, a vice president with investment consultancy, New Third Board Club.

“The grim reality, however, is that many of them are unable to tap the domestic market and face difficulties too in attempting overseas listings at the same time.”

Beijing continues mulling over its plans on how to give home-grown internet stars a fast ticket to A-share IPOs, in an effort to deter them from listing on overseas markets – part of its ambitious “Internet Plus” strategy to modernise and rejuvenate the world’s second-largest economy.

In the first four months of 2017, around 170 listing applications were approved by the CSRC’s IPO review committee, an unprecedented pace for mainland stock markets.

However, only small-cap companies have actually been given easier access to exchanges via IPOs, with fundraising sizes of just several hundred million yuan.

For the online heavyweight stars, such as financial technology (fintech) Ant Financial, an affiliate of Alibaba Group that is valued by its investors at US$60 billion, an A-share IPO remains a way off, despite the regulator’s apparent positive view on their domestic share floatation plans.

Ant Financial is now considered the (fintech) bellwether of the growing fintech sector.

Alibaba owns the South China Morning Post.

Regulators urged to have better understanding of tech firms to keep them listing in mainland

The CSRC is well aware of the fundraising ambitions of the bigger players, but their frustration at being held back, could start to exacerbate the already-bearish sentiment growing in the beleaguered mainland markets.

According to two sources with knowledge of the CSRC’s thinking, companies including Ant Financial and Zhongan are likely to secure the go-ahead to launch IPOs in the mainland, but only when “conditions are right”, whatever than might mean.

Lofty valuations on the A-share market do appeal to technology firms. The grim reality, however, is many are unable to tap the domestic market and face difficulties too in attempting overseas listings at the same time
He Yong, vice president, investment consultancy New Third Board Club

Any online business that finds itself struggling with growth, meanwhile, is also likely to be shut out of the Shanghai and Shenzhen stock exchanges, even if the regulator were to loosen IPO requirements, including on foreign-funded businesses run under a VIE (variable interest entity) structure.

Under a VIE structure, Chinese firms and foreign venture capital funds set up an offshore vehicle that has effective control of a mainland-based technology firms.

Before 2015, VIE firms were simply considered foreign businesses on the mainland which could only seek IPOs in markets outside China.

The Hong Kong Exchanges and Clearing will soon solicit views from the public for its much-anticipated new Third Board to attract mainland and foreign technology companies to list.

They are confident the new third market – after the Main Board and the Growth Enterprise Market – will become a popular alternative listing venue for hundreds of mainland technology firms, left hungry for capital.

(This story has been amended to remove references to Meituan-Dianping)