266 SMEs debut on China’s New Third Board

January 26, 2014 Leave a comment

266 SMEs debut on China’s New Third Board

Xinhua

2014-01-25

A total of 266 small and medium enterprises (SMEs) started to be traded on the New Third Board on Friday, marking a considerable expansion for China’s over-the-counter (OTC) market after the board was officially established one year ago.

The move, bringing the number of companies listed on the New Third Board to 621, represents China’s efforts to encourage the development of SMEs against the current economic downward pressure.

The New Third Board, or National Equities Exchange and Quotation (NEEQ) system, serves as a national share transfer system for SMEs to transfer shares and raise funds.

Of all the debuting companies, which come from 28 provinces across the country, over 75% are engaged in innovative hi-tech sectors, covering high-end manufacturing, information transmission, software, research and development, technological solutions and cultural services.

23% of the companies have capital stock between 5 million yuan and 10 million yuan (US$820,000-$1.65 million), while enterprises with 10 million to 20 million yuan (US$1.65 million-$3.3 million) take up 24%.

Companies with capital stock of 20 million yuan to 50 million yuan (US$3.3 million-$8.26 million) and of above 50 million yuan account for 34% and 19%, respectively, of the total.

Half of the enterprises posted revenue of over 50 million yuan (US$8.26 million) in 2013 and a quarter reported 100-million-yuan (US$16.5 million) revenue with net profits surpassing 10 million yuan (US$1.65 million).

Confronted with a potential slowdown in economic growth, widespread industrial overcapacity and weakening investment increases, China’s economy is increasingly reliant on SMEs to generate growth.

Currently, such enterprises contribute 50% of national tax revenue, 60% of GDP, 80% of employment and 74% of technological innovation, the China Securities Journal reported on Friday.

However, SMEs in China still struggle with financing, regardless of whether they are trying direct or indirect ways of raising money, and are encumbered by intrinsic factors such as high risks for start-ups, lack of information and an opaque financial condition.

Prompted by the situation, the New Third Board was initiated in 2006 as an experimental platform to facilitate financing for China’s non-listed small and promising high-tech enterprises in Beijing’s Zhongguancun Science Park. Companies nationwide are now allowed to file applications.

The present system was officially established on Jan. 16, 2013 after years of trials in cities including Shanghai, Wuhan and Tianjin.

It complements the existing main board, the SME board and the ChiNext board, being seen as an easier financing channel with low costs, simple listing procedures and a short application period for start-up firms unqualified to be listed on major exchanges.

The State Council, China’s Cabinet, released policy measures in June 2013 to support adjustment and upgrading of the country’s economic structure, putting great emphasis on the OTC market in a bid to set up a multi-layered capital market.

Data from Straight Flush, a securities information service provider, showed that 355 enterprises listed on the New Third Board completed 60 issuance projects in 2013, raising over 1 billion yuan (US$165 million) and with aggregate market value surging 64.55% year on year.

Xie Geng, general manager of the NEEQ, revealed that the new transaction platform for the board is scheduled to begin operating in May while a system for market makers could also be expected in August.

Yang Xiaojia, chairman of the board of the NEEQ, promised to expand cooperation with commercial banks and other financial institutes and build a connecting mechanism for the Third Board and other exchanges markets as well as regional markets.

A guideline for supervision over mergers and acquisitions of non-listed companies is being drafted and will be released as soon as perfected, said the China Securities Regulatory Commission on Thursday via its account with Sina Weibo, the Twitter-like microblogging service.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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