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China approves 8 to list on ChiNext
Published on: 2009-12-10
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SHANGHAI—More than a month after ChiNext was launched, China's securities regulator has approved a second batch of companies to list on the start-up board, marking slower-than-expected progress in filling seats in the new high-growth, high-risk market.

The fact that the new lineup of eight companies was thinner than the 28 firms that listed on ChiNext's debut also highlights the difficulties in finding qualified candidates for the market tailored to innovation-driven but cash-strapped small enterprises, analysts said. ChiNext was seen as an avenue to fill a funding void for such companies, which have been bypassed by China's recent lending boom.

ChiNext opened with a roar Oct. 30 on the Shenzhen Stock Exchange, with its initial listings logging gains of as much as 210% on their first trading day. After speculation caused much volatility in ChiNext's first month, the China Securities Regulatory Commission likely took extra care in selecting the next companies, analysts said.

While ChiNext is designed to help technology- and innovation-oriented start-ups raise funds, the first 28 companies turned out to be mostly well-established and financially less risky companies, even including some state-controlled enterprises.

"The regulator must have found it difficult to maintain a similar level of supply to the market this time," said Li Bin, an analyst at Guolian Securities.

Li Nian, an analyst at Shenyin Wanguo Securities, said, "I don't think the regulator has adopted stricter criteria since then. It's simply that the best companies have already been selected, and the regulator doesn't want to lower the standards just to curb speculation."

Indeed, many of the first 28 companies were among the hundreds of applicants originally seeking a listing on the Shenzhen exchange's Small and Medium Enterprise board, which shares the same and stricter listing criteria as the main board.

When the eight new ChiNext candidates kick off their initial public offering subscriptions next week, it will have been more than two and a half months since the first batch of firms did so. Compared with the speed of IPO approval on the SME board—typically around 20 days for eight companies—approval for the eight ChiNext applicants was slow, analysts said.

While the CSRC rejected only two of the 31 applicants for the first batch of ChiNext listings, it turned down six out of the 14 this time. It was unclear why one of the 29 companies with the approval to list among the first batch, a small public-relations agency, failed to make it.

Some analysts also attributed the slower approval process to the regulator wanting to take some time to monitor the volatile new board's initial performance.

On their collective debut, the 28 companies garnered such robust gains that they each had to undergo a temporary trading suspension during the session; almost of all of them suffered heavy profit-taking shortly afterward, which also prompted trading halts. ChiNext's total market capitalization is 153.5 billion yuan ($22.48 billion) now, according to the Shenzhen exchange, more than double the 28 stocks' total capitalization of 69 billion yuan based on their IPO prices.

The CSRC now faces a dilemma: While the only way to crack down on rampant speculation is offering investors more shares to trade, the limited choices of qualified ChiNext candidates means its hands are tied, analysts said.

"The new board will mature sooner or later, but I am afraid it will take a very long time," Shenyin Wanguo's Mr. Li said.

Analysts expect the pace of listings to eventually normalize to around eight IPOs a month.

The eight companies that issued IPO prospectuses Tuesday are Guangzhou Improve Medical Instruments Co., Wuxi Boton Belt Co., Hexin Flush Information Network Co., Beijing SuperMap Software Co., Beijing Cisri-Gaona Materials & Technology Co., Jiangsu Huasheng Tianlong Photoelectric Co., Jinlong Machinery & Electronic Co. and Hunan Zhongke Electric Co. Of the eight, Beijing Cisri-Gaona is a state-owned company, while government entities own minority stakes in several of the others.

Based on statements filed to the Shenzhen Stock Exchange, the eight companies will start subscriptions Dec. 16 for their IPOs, aiming to raise a combined 1.6 billion yuan.

It wasn't clear when the eight new companies would start trading on ChiNext.

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