Exchanges consider new methods to assist rapidly growing firms

Chinese equity exchanges are exploring new and creative ways to accommodate strong funding demand from high-growth companies.

The Shanghai Stock Exchange is applying for regulatory permission to establish a strategic emerging industry board for high-growth and innovative enterprises, said Chairman Gui Minjie, a member of the CPPCC National Committee.[Special coverage]

"The capital market has made big progress in supporting the domestic strategic emerging sector and innovative enterprises, but it needs to do more to support such a large economy," said Gui.

In 2009, the Nasdaq-style ChiNext board opened at the Shenzhen Stock Exchange. In 2012, the National Equities Exchange and Quotations, China's third national equity exchange, opened to provide financing platforms for high-growth enterprises.

ChiNext has 379 listed enterprises, with more than 640 enterprises at the NEEQ, but there are still plenty of fast-growing companies hungry for funding.

Gui said the latest board would be created for emerging and innovative enterprises that have achieved "a certain scale" of business, rather than those at the entrepreneurial stage.

He also said the strict listing system in China can't be applied to many enterprises in strategic emerging sectors.

"If the strategic emerging industry board can be launched, the SSE will consider allowing those not yet profitable to be listed, and we'll seek new regulations covering companies' equity structure," said Gui.

Gui said the new board at the SSE and the ChiNext board at the Shenzhen Stock Exchange will have "healthy" competition, which will push each exchange to offer better services, lower costs and greater efficiency.

Chen Dongzheng, chairman of the Shenzhen Stock Exchange, offered support for the SSE move.

A long, sustainable process is needed to support the development of small and medium-sized and high-growth enterprises, he added.

"The rules of the ChiNext market are under revision, mainly with regard to lowering the threshold for listings and expanding the scope of listings, to attract more quality, high-growth companies," said Chen.

"We will continue to provide good services for micro-sized, small and medium-sized companies with high potential," Yang Xiaojia, chairman of the National Equities Exchange and Quotations, said previously.

Companies listed on the NEEQ don't need a track record of profitability.

The strategic emerging industry board can be good for domestic high-growth companies because they require funds most in the early development stage, said Hong Hao, managing director and chief strategist at BOCOM International Holdings Co Ltd.

"Establishing, perfecting and implementing laws and regulations for the board is vital to protect the interests of investors," said Hong.

Hong said that funds in the secondary market would be diverted if the new board is established. Companies involved in new energy, environmental protection, high technology and high-end manufacturing will all be attractive.

The United States will continue to be another good market for Chinese high-growth enterprises seeking funding, added Hong.

Requirements for initial public offerings, refinancing, and mergers and acquisitions can be stricter in China than in the US, and the process takes longer, said a banker at a global leading investment bank.

He said the strategic emerging industry board can be popular if it improves on these measures.

The strategic emerging industries include energy conservation, environmental protection, information technology, biology, advanced machinery, new energy, new materials and alternative-fuel vehicles.