21 August 2019

Tech firms seek wider door to A-share markets

Big Chinese technology companies like Baidu Inc. (BIDU.US) and Tencent Holdings Ltd. (00700.HK) have become darling stocks in the markets where they are listed, but the irony is that many of these shares are not trading in mainland bourses. Stringent listing requirements may continue to bar many Chinese firms from gaining access to the country’s capital markets, depriving domestic investors of the chance to share in their success.

In the annual session of the Chinese People’s Political Consultative Conference, Baidu chairman Robin Li urged the government to ease listing rules to allow the nation’s internet companies to raise funds in the domestic stock markets to fuel their growth.

Trading the shares of high-quality companies in the country’s stock markets will help boost the quality of the market and raise investors’ confidence.

Citing his own company as an example, Li said Baidu’s shares broke the first-day trading record on the NASDAQ market. The counter surged from its US$27 offer price to US$122.54 on its debut, and is now trading around US$180. Sadly, domestic investors have not benefited from the stock’s strong performance.

And it’s not just Baidu. Chinese stock market traders have missed so many other golden opportunities presented by state-owned and private technology-related enterprises to overseas investors. Tencent, the country’s largest instant messaging and online games operator, has seen its shares surge from HK$3.70 (47.6 US cents) when it listed in 2004 to the current HK$600 level.

China Mobile (00941.HK), the nation’s largest mobile operator, was the first state-owned telecommunication firm to list in Hong Kong in 1997 at an offer price of HK$11.68. The stock jumped to a historical high of HK$160 in October 2007, and is now trading around HK$70. 

The stock market regulator has introduced a wide range of measures to boost investor sentiment in the A-share market, including forcing listed companies to enhance their information disclosure. And yet the benchmark Shanghai Composite Index still trades at the 2,000 level, compared with its peak of more than 6,000 points.

While it may be difficult to persuade foreign-listed technology giants to return to the local stock market, the China Securities Regulatory Commission, the country’s stock market watchdog, plans to reform the ChiNext board to lure more technology-related firms as part of its efforts to improve the fund-raising function of the market.

Currently, tough financial requirements for listing candidates prevent many technology start-ups to go public in China, and have opted to list in overseas bourses to raise the funds they need. These requirements include a track record of profitability for two consecutive years amounting to 10 million yuan (US$1.63 million) and revenue growth of at least 30 percent for two straight years.

CSRC chairman Xiao Gang said ChiNext should be used to incubate fast-growing domestic tech companies, and hinted that financial requirements will be relaxed for these firms seeking to raise funds on the board.

However, the country’s outdated stock market trading mechanism and legal framework could delay the implementation of such reforms.

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EJ Insight writer

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