24 October 2018
Rico Kang (middle) says people's perceptions of the New Third Board have dramatically changed. Photo: EJ Insight
Rico Kang (middle) says people's perceptions of the New Third Board have dramatically changed. Photo: EJ Insight

New Third Board not yet an ideal exit mechanism

China’s main over-the-counter (OTC) exchange for technology start-ups has some way to go before it can offer a way out for venture investors seeking an exit, Legend Capital said Monday.

Legend Capital president Rico Kang said the OTC platform, dubbed The New Third Board, is “a very attractive financing channel, especially for smaller firms”.

However, as an exit mechanism for private equity and venture capital funds, the New Third Board “is not yet up to expectations” because of lack liquidity, he said.  

Legend Capital, the venture capital unit of Legend Holdings, has more than 20 billion yuan (US$3.23 billion) of assets under management. Legend Holdings is the biggest shareholder of Chinese computer maker Lenovo.

The New Third Board, formally known as National Equities Exchange and Quotations (NEEQ), is a share transfer system for small and medium-sized enterprises.

It was launched in 2012 as part of efforts to develop a multi-layered capital market and as an alternative fundraising channel to the Shanghai Stock Exchange and Shenzhen Stock Exchange (SZSE).

NEEQ did 1.16 billion yuan worth of deals on Tuesday compared with 213 billion yuan for SZSE’s ChiNext.

But Kang said public perceptions of the New Third Board have changed since its launch.

“When we talked about the New Third Board two or three years ago, most people looked down on it,” he said.

“Many start-ups thought it was for bad companies that could not make it on ChiNext,” Kang told in the HKVCA China Private Equity Summit.

“But things are different today. Trading has become more active,” he said, adding that more competitive companies among the nearly 2,500 on the board can still get good financing.

“I think that this market is gradually improving… it cannot be considered a main exit channel yet, but we will be very interested in its development,” he said. 

Suzie Wu, managing partner of Beijing Tianxing Capital Investment Management, which manages five 5 billion yuan mainly invested in start-ups, is even more optimistic.

“We are a value investor and we are not worried about the liquidity issue,” she said.

“What we worry about is people having too much expectations and ruining the board before it matures.”

Wu said NEEQ could be China’s future NASDAQ.

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EJ Insight reporter

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