China’s easing of M&A rules put in place after 2015 market crash will boost fundraising, analysts say
- Tougher rules put in place after the market crash led to fundraising shrinking from 833 billion yuan four years ago to 71 billion yuan so far this year
- Move will quicken back-door listing process on Shenzhen and Shanghai stock exchanges
The recent easing of mergers and acquisitions rules for listed companies by China’s markets regulator – put in place after the 2015 market crash – will bolster secondary fundraising and shore up private firms hurt by Beijing’s deleveraging campaign, analysts say.
China Securities Regulatory Commission (CSRC) scrapped profitability requirements in M&A deals involving listed companies, according to a statement on Friday. The revision would also allow additional fundraising for such deals, and lead to a faster back-door listing process on the main boards of Shenzhen and Shanghai stock exchanges.
The watchdog gave the nod to back-door listing of hi-tech companies or firms in industries of strategic importance to the country on the ChiNext board of start-ups in Shenzhen.
back-door listing, also called reverse takeover, is a way for a private company to list itself on a stock market without going through the normal initial public offering process. The private company would usually acquire a shell company, a listed one with little assets or current business activity, and inject its own assets into the shell.
The move underscores a change in regulators’ attitude towards secondary fundraising of listed companies, after they established tighter restructuring regulations in the aftermath of the 2015 crash – which wiped out US$5 trillion in market value – to contain speculation.
“The revision benefits companies as they can enhance their operations by buying and combining quality assets more freely,” analysts at China International Capital Corporation wrote in a report published on Monday.