What is the technology board?
The Shanghai Stock Exchange’s new technology
board aims to attract both foreign and domestic technology
companies to sell shares in the PRC. Unlike similar local
initiatives, the board has taken a registration rather than
approval-based approach. "The IPO [initial public offering]
process under the new technology board will be much faster than
that of other boards, as approval from the China Securities
Regulatory Commission (CSRC) is not required for listing," said
Johnny Chan, chief legal and compliance officer at China
Under the rules, the approval process will be delegated to
the vetting department and listing committee of the Shanghai
Stock Exchange (SSE), supported by the technology innovation
advisory committee. It will accept applications from companies
with weighted voting rights (WVR) and red-chip companies under
the Chinese depositary receipts (CDR) system. Red-chip
companies are mainland-based firms that also list outside of
Chinese appetite for US listings is dwindling
The threshold for a trading halt for shares admitted to
trade on the proposed SSE Technology Innovation Board will
increase to 20% rise or fall on any single trading day, as
opposed to the current 10% for the Shanghai main board and
Investors are required to have at least two
years’ experience in stock market trading and at
least RMB500,000 ($73,921) in trading capital.
Another requirement is that IPO sponsors purchase between
two and five percent of the total shares in an IPO during the
two-year lock up period. Sponsors need to buy five percent of
IPOs of less than RMB1 billion. For IPOs of more than RMB5
billion, they must buy two percent. For IPOs between RMB1
billion and RMB2 billion, it’s four percent.
Rule change in HK to usher in wave of US IPOs
In the past, technology giants like
Alibaba, Xiaomi and Tencent have chosen to be list in
either Hong Kong or the US, with most shares subsequently held
by overseas investors. "With the setup of the new board,
technology firms in the PRC now have another choice, and
domestic investors in the PRC will have easier access to such
investment," said Chan.
The increased number of IPOs will bring opportunities to
different types of financial institutions in China. "This can
bring more business growth to domestic securities firms," said
Chan. In addition, private equity and venture capital firms can
sell their investments and exit a company more easily due to a
shortened and simplified IPO process.
What aspects lack clarity?
Joseph Lee, partner at Simmons & Simmons, says that
in terms of disclosure, the new regime requires the sponsor to
ensure the information disclosed in the application is
'sufficient, consistent and comprehensible’. This
gives regulators discretion for subjective judgment in vetting
"Reliance on the supervisory board to supervise the
compliance with an exercise of special voting rights may not be
effective, as the holders of the special voting rights are
entitled to elect members of the supervisory board," said
Asian exchanges compete for IPOs of new economy
Lee thinks the rules empower the SSE to force issuers with
weighed voting rights to rectify circumstances in which abuse
of those rights negatively affects investors. It does so
without specifying what constitutes abuse nor the consequences
of failing to rectify.
Additionally, as there have not been any Chinese depository
receipts (CDR) listed in the PRC to date, CDRs listing on the
new board will require further clarity on procedures.
How might it impact Hong Kong listings?
Chan thinks HKEx will see the new technology board as a
competitor. "There are lots of technology unicorns in the PRC
planning Hong Kong IPOs in the next two years," said Chan. The
new board gives these companies an alternative route for
fundraising. Any liquidity or listing criteria issues, which
are as yet uncertain, will influence this.
A speedy vetting process compared to the existing regime may
well draw more IPOs. "But given the performance of the Shenzhen
ChiNext board and the Beijing New Third Board are rather
disappointing, one cannot rule out the possibility the SSE
Technology Innovation Board would also just not be able to
satisfy the appetite of PRC investors," said Lee.
Hong Kong remains attractive to potential listing firms due
to its more developed and mature stock market, less
interventionist approach and free flow of capital. But the
Shanghai technology board is certainly trying to catch up.
When will it launch?
The board is slated to launch at the end of May 2019.
Investors are allegedly already eager to put their money in.
Seven fund houses specifically targeted at the tech board had
already met their fundraising targets on their first day of
sales at the beginning of May.
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