IPO review essentials for NEEQ-listed companies

So far, IPO approval has been granted to five companies listed on the NEEQ after its expansion: Jiangsu Flag Chemical Industry; Guangdong Topstar Technology (Topstar); Zhejiang Three Stars New Materials; Xiamen Guangpu Electronics (Guangpu); and Guiyang Xintian Pharmaceutical (Xintian). Upon review of filings submitted by these companies, including prospectus, attorney’s report and supplementary legal opinion, the authors note three issues that are mainly noticed by the China Securities Regulatory Commission (CSRC) when reviewing IPO applications from NEEQ-listed companies.

Trading of the listed share on the NEEQ

As a result of an applicant’s shares trading on the NEEQ, the CSRC was especially concerned about whether there was any transfer of benefits involving new shareholders, given that the prospective issuers had been listed on the NEEQ. In feedback to Guangpu, Topstar and Xintian, the CSRC requested “a description about trading of the issuer’s shares when they were being listed on the National Equities Exchange and Quotation” and, “examination on those who became shareholders after the issuer’s listing on the NEEQ, and a statement as to whether any affiliation or transfer of benefits was involved”.

According to replies from the three companies, Guangpu’s shares were traded only once and Topstar’s shares had never been traded when they were being listed on the NEEQ. Xintian’s shares were traded frequently on the NEEQ, but the trading volume represented made up just 1.58% of Xintian’s total share capital. Verification by intermediaries showed no abnormal transactions or transfer of benefits.

Feedback from intermediaries revealed that transactions in shares of the three companies were not complicated and had not resulted in the number of shareholders going beyond 200. Intermediaries had issued opinions based on statements from relevant shareholders and examination of details related to share transactions. However, these examinations of issuers frequently traded on the NEEQ was also supposed to be very time consuming.

Author: Jiang Fengtao is the founding partner and Meng Dan is a capital market associate at Hengdu Law Firm