Caixin
Mar 10, 2018 06:18 PM
FINANCE

Shanghai, Shenzhen Bourses Draft New Rules to Attract Tech Unicorns

Shenzhen Stock Exchange. Photo: VCG
Shenzhen Stock Exchange. Photo: VCG

China’s major stock exchanges are drafting new listing rules to attract local tech startups and giants to trade their shares at home, as part of the country’s efforts to boost its capital market and support emerging sectors of the economy.

The Shanghai Stock Exchange is now preparing to make regulations for high-quality innovative companies’ domestic listing, according to a statement published Friday on its website.

Meanwhile, the Shenzhen Stock Exchange has almost completed the preparatory work needed to introduce new rules, Wang Jianjun, the bourse’s general manager, told media during the ongoing annual meeting of the National People’s Congress, China’s top legislature.

According to a document seen by Caixin, Wang’s proposal to the legislature calls for changes to the country’s Corporate Law, paving the way for domestic exchanges to allow companies to issue dual-class shares, or shares with weighted voting rights and non-voting rights.

Current rules mandate a long-held principle of one vote per share for companies listed on the Chinese mainland or Hong Kong. Weighted-voting rights differ in the equity power of shares. In the dual-class structure, one class of shares may have no voting rights or limited rights under certain circumstances. Lesser rights are generally issued to the public whereas founders, directors, and management can hold shares with superior voting power, including the right to have multiple votes per share.

Wang suggested that the dual-class share structure, which is common among U.S.-listed companies, should be first tested among innovative tech companies and state-owned enterprises.

Shenzhen’s neighbor Hong Kong is well on its way to adopting the same approach. The Hong Kong bourse plans to change its listing rules to accept companies with dual-class shares. The new regulations are expected to take effect as early as late April.

In the past, China has set restrictions on weighted voting rights, as well as mandatory requirements on initial public offering applicants’ profitability. As a result, the country has seen its home-grown tech giants, including Alibaba Group Holding Ltd., Baidu Inc., JD.com Inc, and Tencent Holdings Ltd., go public in the U.S. or Hong Kong, where listing rules are more flexible.

In order to reverse this trend, China has included the goal of facilitating high-quality innovative companies’ domestic listing in its government work report, a high-level document that sets the tone for future policies. China’s securities regulator is partnering with the Shanghai and Shenzhen stock exchanges for possible changes regarding domestic listings of tech unicorns, or startups valued at over $1 billion.

Caixin reported earlier that the China Securities Regulatory Commission is studying ways to make it easier for companies from emerging sectors of the economy to go public at home. This includes launching China Depositary Receipts, similar to American Depositary Receipts, which would enable Chinese companies listed offshore to trade at home.

Contact reporter Lin Jinbing (jinbinglin@caixin.com)


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