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China Nasdaq-style tech board draws spinoff listings

Beijing

CHINA'S new Nasdaq-style tech board could become a hotbed for companies to spin off and list units domestically, something that hasn't been much of an option until now.

At least nine companies listed in Hong Kong and mainland China have decided to or are considering spinning off parts of their businesses on the freshly launched SSE STAR Market. One of them, Western Metal Materials, surged by the 10 per cent limit for two days in a row after disclosing its plans in early April. Lepu Medical Technology Beijing climbed 13 per cent over a similar time-frame.

The Shanghai and Shenzhen stock exchanges have been inundated with investor queries about spinoffs on the new board, where the first listing is expected in the next two months. The bourse is in part aimed at stemming an exodus of listings by innovative Chinese firms. Suzhou HYC Technology is the first to start an initial public offering there, filing a preliminary prospectus this week.

Investors and companies were encouraged by the China Securities Regulatory Commission saying earlier this year that companies of a certain scale would be able to list qualified subsidiaries separately on the tech board.

"The regulators didn't encourage domestic spinoff listings in the past, as there were concerns it might spur speculation or problems such as financial misbehaviour or corporate independence issues," said Ge Shoujing, a Beijing-based senior analyst at the Reality Institute of Advanced Finance. Domestic spinoffs appeal as they'd give mainland investors fresh buying opportunities in China, while parent companies can potentially streamline operations and have seen boosts - at least in the short term - to their share prices. The nine companies that announced spinoff plans all rose in subsequent days.

The tech-heavy ChiNext Index trades at around 20 times forward earnings, while Hong Kong's Hang Seng Index is at 11 times. Both gauges have had a rough few months as the trade dispute with the US escalated, but they've still posted gains year-to-date despite slipping from April highs: the ChiNext is up 18 per cent in 2019 and the Hang Seng has added 9.8 per cent.

The SSE STAR Market has attracted attention partly because of its simpler listing process, including waiving restrictions on how companies are priced, theoretically making it less onerous for applicants. BLOOMBERG