Since January 2019, China Securities Regulatory Commission and the Shanghai Stock Exchange have successively published the Implementation Opinions on Establishment of the Science and Technology Innovation Board (STIB) on the Shanghai Stock Exchange and the Pilot Registration System, and other supporting rules.
In accordance with the Implementation Opinions and supporting rules, the STIB is a market designed mainly for scientific and technological innovation enterprises that are aligned with national strategies, make breakthroughs in key and core technologies and gain high market recognition. The STIB will provide a new option for the listing of scientific and technological innovation enterprises.
There are various innovations in system design of the STIB, which will lead to significant changes in the capital markets of China. This article focuses on the STIB system, and provides a comparison and analysis of such system and the A-share GEB (Growth Enterprise Board) system, for reference.
1. Requirements on industries and fields
Focus on supporting:
- Scientific and technological innovation enterprises in new-generation information technology, high-end equipment, new materials, new energy, energy conservation and environmental protection, biomedicine and other high and new technology industries and strategic emerging industries;
- Scientific and technological innovation enterprises that deeply integrate the internet, big data, cloud computing, artificial intelligence and manufacturing.
Enterprises that are mainly engaged in a single line of business.
For the GEB, industries and fields in which enterprises operate are not expressly restricted, while the STIB focuses on scientific and technological innovation enterprises.
2. Examination and verification system
The Shanghai Stock Exchange is responsible for examining and verifying application materials, and submitting the materials to the China Securities Regulatory Commission for registration, after giving its opinions for approval.
After being accepted by the China Securities Regulatory Commission, the application documents are preliminarily examined by relevant functional departments and examined and verified by the Examination and Verification Committee for Issuance on the GEB.
For the STIB, a registration system is implemented, while there are examination and verification. On one hand, the exchange will conduct the selection from various aspects in compliance with laws and regulations; on the other hand, the value of an enterprise is judged in the market and by investors.
3. Special voting right system and red-chip structure
“Dual-class share” and red chip structures are allowed:
- The number of voting rights per class share carrying special voting rights is permitted to exceed the number of voting rights per ordinary share;
- Red-chip companies that comply with the Notice from the General Office of the State Council on Forwarding the Several Opinions of the China Securities Regulatory Commission on Launching the Pilot Program for Issuance of Shares or Depository Receipts in China by Innovative Enterprises (GBF (2018) No.21) and relevant requirements of China Securities Regulatory Commission, apply for the issuance of shares or depository receipts, and are listed on the Science and Technology Innovation Board (STIB).
Shareholding structure requirements are as follows:
- The same class of shares of a stock company rank pari passu with each other;
- Domestic companies limited by shares other than listed companies and public companies can issue ordinary shares only;
- The listing of enterprises with a red chip structure is not allowed
For the STIB, the system design of red-chip companies and the dual-class share structure is allowed, which helps significantly reduce capital and time costs required for the privatization by red chip companies for returning to the A-share market.
4. Spin-off and listing
A listed company of a certain size may spin off its qualified subsidiaries whose businesses are independent, for listing on the STIB.
Any listed company whose A shares have been listed is not allowed to spin off its subsidiaries for listing on the A-share market.
For the STIB, spin-off and listing are allowed, which helps arouse the enthusiasm of listed companies in innovation investment, and gives full play to the advantages of listed companies in terms of funds, human resources, research, marketability and otherwise.
5. Financial indicators
Any one of the following five financial requirements should be satisfied:
- The expected market value is not less than RMB1 billion, and net profits for the past two years are both positive and are not less than RMB50 million in total; or the expected market value is not less than RMB1 billion, and net profits for the last year are positive, and the operating revenue is not less than RMB100 million;
- The expected market value is not less than RMB1.5 billion, and the operating revenue for the past year is not less than RMB200 million, and the research and development investments for the past three years account for not less than 15% of the operating revenue;
- The expected market value is not less than RMB2 billion, and the operating revenue for the past year is not less than RMB300 million, and the operating cash flow for the past three years is not less than RMB100 million;
- The expected market value is not less than RMB3 billion, and operating revenue for the past year is not less than RMB300 million;
- The expected market value is not less than RMB4 billion, and the enterprise operates in a special industry, with a huge market, and has made progress. A pharmaceutical enterprise should have at least one core product approved for phase II clinical trial, while other enterprises should have significant technical advantages and meet corresponding conditions.
The following conditions should be met:
- The net profits for the past two years are positive and are not less than RMB10 million in total; or the net profits for the past year are positive and the operating revenue for the past year is not less than RMB50 million.
- The net assets at the end of the last accounting period are not less than RMB20 million, and there are no losses that have not been recovered.
For the STIB, the requirements on net profits are weakened, while diversified conditions that focus on the expected market value in consideration of other financial indicators are established.
6. Pricing principle
The IPO price is determined through inquiry, without an upper limit.
The IPO price is determined through inquiry, or negotiation, with the price-to-earnings ratio less than 23 in practice.
For the STIB, there is no upper limit on the price-to-earnings ratio, which helps channel capital to industries that can really build core competitiveness and technological barriers for the benefit of the state.
7. Delisting system
The most rigorous delisting rule in “history” is established:
- The delisting processes are simplified; if an enterprise triggers a delisting, it will be delisted immediately, and trading suspension, resumption or re-listing processes cease to apply;
- Enterprises whose shares are delisted shall not apply for re-listing.
Systems of trading suspension, re-listing and delisting are established.
A strict mechanism for survival of the fittest guarantees a healthy market under the registration system. The establishment of multi-standard delisting conditions, clear and operable delisting processes and strict mechanisms for the protection of investors can help ensure the overall quality of companies listed on the STIB.
Liu Tao is a partner at Commerce & Finance Law Offices in Shanghai. He can be contacted on +86 21 6019 3260 or by email at liutao@tongshang.com. Huang Qingfeng is a senior associate at Commerce & Finance Law Offices in Shanghai. He can be contacted on +86 21 6019 2695 or by email at huangqingfeng@tongshang.com
