Companies preparing for an initial public offering on Shanghai’s tech-focused STAR board could soon face stricter rules which would require them to prove their technological credentials, setting a higher bar for first-time public listings, according to people with knowledge on the matter.
The China Securities Regulatory Commission (CSRC) plans to announce the new rules as early as April, in order to reduce financial risks and urge firms to develop “hardcore” technology and innovation, Bloomberg and Reuters reported. Companies to go public on the board will be subjected to heightened scrutiny of their financial health in the interests if boosting the quality of publicly-listed firms and protecting investors, sources said.
In 2019, the Shanghai Stock Exchange kicked off the Nasdaq-style tech board –the Science and Technology Innovation Board, or “STAR Market”. To make it easier for innovative companies to access public market financing, the board allowed streamlined registration-based IPOs, removed limits on the scale of share and valuations, and tolerated stock price swings in the first few days of trading. The finance-friendly environment has attracted companies to rush in to raise money from investors who are hungry for tech shares. As of March 9, there were 236 companies listed on the board, with a combined market value of 3.1 trillion yuan ($0.48 trillion), according to Reuters.
However, concerns over the quality of listed firms are mounting. The Shanghai Stock Exchange said last month that seven out of nine companies withdrew their applications for IPOs after the bourse offered to conduct on-site checks of the firms.
The introduction of tighter regulations by the CSRC is regarded as a move to address market volatility and lack of governance on the board, which is also consistent with the Chinese government’s recent crackdown on the country’s fintech industry. In November, Ant Group’s plan for a dual listing on the STAR and Hong Kong bourses was shelved suddenly after Chinese regulators summoned Jack Ma and other executives of the fintech giant, putting a halt to what was set to be the biggest stock debut in history, with at least $34 billion in proceeds.
The sources said that although the tougher rules are not aimed at any particular sector, they would make it more difficult for fintech companies, including Ant Group, to go public, as the bourse plans to review their applications more closely.
PwC predicted in January that at least 150 companies may file for listing on the board this year, which would raise more than 210 billion yuan ($32.3 billion), compared with the 145 filings yielding 222.6 billion yuan ($34.3 billion) last year. With enhanced regulatory oversight looming, several companies may need to cancel their IPO plans for the tech-heavy board, sources said. Some firms may turn to Shenzhen’s Chinext board as an alternative.
JD Technology, the financial unit of China’s e-commerce giant JD.com, is also likely to withdraw its application for a listing on the STAR board, citing “changing business circumstances” after authorities ordered a halt to Ant Group’s blockbuster share sale, the South China Morning Post reported earlier this week.