25 October 2016
The National Equities and Exchange Quotations, China's so-called third board, is expected to lure more overseas-listed mainland firms.
The National Equities and Exchange Quotations, China's so-called third board, is expected to lure more overseas-listed mainland firms.

More Nasdaq-listed China firms seen returning home

More Nasdaq-listed Chinese firms are likely to unwind their Variable Interest Entity (VIE) structure and list themselves on China’s New Third Board (NTB) in the second half of this year, according to a mainland securities industry professional.

Lu Xiande, a general manager at Guosen Securities, said there have already been some cases of overseas-listed Chinese firms returning to the NTB after dismantling their VIE structure.

Such initiatives will gather pace, Lu said at the HKVCA China Private Equity Summit that was held in Hong Kong this week.

The NTB, an over-the-counter exchange for small and medium-sized businesses, will welcome the homecoming of foreign-listed mainland firms, he said. 

The so-called third board, which was launched at the end of 2013, has proved its strong financing function in recent months.

Listings on the board now number more than 2500, compared with about 800 last June. Of the new listings, more than 140 firms saw their share prices double in the first five months of debut, while some notched even more impressive gains.

Suzie Wu, managing director of Tianxing Capital, said private placement offerings of good companies are highly sought-after on the NTB.

Tianxing Capital has been an active participant in NTB. As of early May, 123 of its invested firms have listed on the third board.

Due to high threshold and other regulatory issues surrounding flotations in the A-share market, many Chinese startups, especially internet ventures, accepted dollar funds in round A financing, and then listed their shares in foreign stock markets through VIE structure.

Under a VIE structure, equity holders have a somewhat indirect financial interest in the revenue and earnings stream and do not actually have a claim on the assets of the company in question.

The NTB is now providing an attractive alternative for exit, Vincent Chan, chief executive of Spring Capital Asia, noted at the same event.

Now, US dollar venture capital funds could face a strong competitor, he said.

If more internet startups target NTB, they would give up VIE structure and avoid US dollar A round financing.

Asked about liquidity of NTB-listed stocks, Wu said Tianxing has no worry about the issue. Tianxing will put in more resources in third board-listed entities in the coming years, she said.

Total market value of the NTB firms is close to 1 trillion yuan as of now.

Some industry players believe the level could even surpass the combined market value of firms on Shanghai and Shenzhen stock exchanges in ten years.

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EJ Insight reporter

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