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China’s Nasdaq-style tech board is tightening rules to burnish its role as a venue for ‘hard technology’ firms after more than two years of operations. Photo: Reuters

Pulled IPOs at Lenovo, Geely Auto test Shanghai Star Market’s ‘hard technology’ listing criteria

  • Lenovo is the second Hong Kong-listed ‘red chip’ company to pull its listing plan on Shanghai’s Star Market, after Geely Auto
  • New listing requirements introduced in April set minimum ratios on R&D-related spending
Chinese companies are getting cold feet from stringent stock-listing requirements in Shanghai, after personal-computer maker Lenovo and carmaker Geely Automobile pulled their applications, cooling “home-listing” momentum.

The two industry giants, with US$75 billion in combined annual sales and US$2 billion in earnings, withdrew their initial public offering (IPO) plans this year as regulators sought to burnish the Star Market credentials as a board for “hard technology enterprises”.

A new rule in April requires listing applicants to have at least 10 per cent of their headcounts engaged in R&D functions. Other criteria include having at least 5 per cent of their revenue devoted to research and development expenses for the most recent three years, or at least 60 million yuan (US$9.3 million) in aggregate.

“Some of these requirements were not in place when Lenovo and Geely submitted their listing applications,” said Bruce Pang, head of macro and strategy research in Hong Kong at China Renaissance Securities. “These include the increasing focus on the innovative attributes of a tech company, which highlights its R&D input.”

An employee gestures next to a Lenovo logo at Lenovo Tech World in Beijing in November 2019. Photo: Reuters

More stringent approvals implemented since April this year have since lengthened the queue of applicants, challenging even established, profitable enterprises to list on the Star Market.

More than 340 companies have listed on the Star Market since its inception in July 2019, with a combined market capitalisation of 4.8 trillion yuan. It added 126 firms in the first three quarters this year, versus 113 in the same period last year. Some 55 are currently awaiting approval, up from 20.

“The listing approval momentum appears to have slowed down compared to last year,” said Yan Yiming, a Shanghai-based lawyer who assists Chinese companies access capital markets. “Exchange officials could be reviewing how the listing business is going after the past two years.”

Lenove, the Thinkpad laptop maker, cited relevant capital market conditions in its decision this month, while Geely Auto, whose closely held parent owns Volvo Cars, mentioned careful studies and discussions with its advisers when it abandoned the plan in June
The Geely Preface sedan is displayed at the Beijing Auto Show last year. Photo: AFP

Their decisions leave Semiconductor Manufacturing International Corporation as the only Hong Kong-listed “red-chip” – or foreign-incorporated mainland firm – to be traded on the Star Market. The state-controlled chip maker debuted in July 2020 after a 46.3 billion yuan offering, the biggest in a decade.

In recent years, Chinese regulators have rolled out the red carpet for home-grown tech firms to win back some of the fast-growing new economy companies as well as opening a route for its US-listed entities amid delisting pressures from US authorities.

As leaders in their respective sectors, Lenovo and Geely Auto would easily qualify for a main board listing. Yet, they appear to have come up short on the Star Market’s new requirements on R&D benchmarks.

A calculation based on data from Lenovo’s annual reports shows that R&D spend ratio for the most recent three years was 2.46 per cent, 2.67 per cent and 2.38 per cent, respectively. The aggregate amount spent on R&D over this period also fell short, at 26.08 million yuan.

“For sizeable enterprises with longer history and track records, the main boards of Shanghai and Shenzhen stock exchanges would be a better fit,” said Yan.

This article appeared in the South China Morning Post print edition as: IPO U-turns slow star market’s momentum