Friday, 28 Feb 2020

China regulator scraps tough profit demands for IPOs on ChiNext

BEIJING/SHANGHAI (Reuters) – China is scrapping profitability requirements for initial public offerings (IPOs) on Shenzhen’s start-up board ChiNext, one of several regulatory changes to encourage more firms to raise equity funding and to create a more vibrant stock exchange.

The China Securities Regulatory Commission (CSRC) said applicants no longer needed two consecutive profitable years to list on ChiNext, a move that helps start-ups that typically need heavy investments early on before they turn a profit.

CSRC also said it would encourage listed firms to find strategic investors and announced the launch of new exchange-traded derivative products.

China wants companies to raise more equity financing to reduce reliance on bank loans. A vibrant stock market could also help an economy under pressure from the U.S.-China trade war.

Until now, companies that have yet to make a profit could only seek an exchange listing on Shanghai’s STAR Market, which has adopted a U.S.-style registration-based IPO system.

CSRC Chairman Yi Huiman said this month that the registration-based IPO mechanism, under which CSRC no longer vets IPOs, would be rolled out on ChiNext, without giving a timetable.

CSRC said on Friday it would facilitate additional financing by companies listed on both ChiNext and the STAR Market, encouraging them to introduce strategic investors.

The regulator said it approved the launch of new exchange-traded fund (ETF) options on the Shanghai and Shenzhen stock exchanges, and the rollout of CSI300 index options on the China Financial Futures Exchange.

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