China’s stock regulator issued new rules on Tuesday to prepare for the launch of a long-awaited Nasdaq-style second board after May 1 in a key step to support start-up firms starved of cash amid slowing economic growth.
Does this signals the death of S-shares?
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China Ready to Launch Nasdaq-Style Second Board
Reuters
31 March 2009
China’s stock regulator issued new rules on Tuesday to prepare for the launch of a long-awaited Nasdaq-style second board after May 1 in a key step to support start-up firms starved of cash amid slowing economic growth.
The China Securities Regulatory Commission (CSRC) issued the rules governing initial public equity offers by small and medium-sized companies on the second board of the country’s southern Shenzhen Stock Exchange.
The rules will take effect May 1 but analysts say it may take a few weeks longer for the new board to kick off with enough companies meeting the requirements and beginning to raise funds.
Exchange officials have been quoted by state media as saying that the new board needs at least eight companies as the first batch of listings to be launched officially.
A CSRC spokesman said in a statement that the launch of the board suited China’s aim of building multi-level capital markets.
“The main purpose is to promote the developments of start-ups and other companies with high growth,” the spokesman said in a statement published on the regulator’s website, www.csrc.gov.cn.
The new rules, also published on the CSRC’s website, say any company which meets one of the two conditions will be given approval to go ahead for an IPO on the new board.
A company must have made consecutive profits over the past two years, with combined net profits no less than 10 million yuan ($1.5 million), according to the rules.
Otherwise, it must make a profit over the past year, with a net profit no less than 5 million yuan and operational income no less than 50 million yuan in the year, plus a requirement of a 30 percent growth in income each year over the past two years.
In comparison, the rules for China’s main-board IPOs in the eastern Shanghai Stock Exchange require companies to make consecutive profits over the past three years, with combined net profits no less than 30 million yuan.
The main-board rules also have other restrictions such as companies must have an accumulative net cash flow of at least 50 million yuan over the past three years and accumulative operational income of at least 300 million yuan.
China began to consider launching a Nasdaq-style second board in Shenzhen in the late 1990s, but the process was delayed after the bursting of the global dotcom bubble in 2000.
To meet the fund-raising demand by start-ups as its economy expanded rapidly, China launched the Small and Medium Enterprise Board on the Shenzhen bourse in 2004, which now has over 200 companies listed. It has looser regulations than the main board but stricter ones than the coming second board.
The urgency for China to establish a second board gained momentum in 2008 when the global financial crisis slowed the economy sharply, and worries over defaults and consequent rises in non-performing loans made Chinese banks increasingly reluctant to lend to small companies.
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