Tech start-ups at Shanghai park benefiting from IPO reforms

Technology start-ups at a major hi-tech park in Shanghai are expected to be some of the leading beneficiaries of China’s reformed initial public offering (IPO) mechanism as they fast track preparations for fundraising, according to an executive from the group that operates the park.

Chen Jun, president of state-owned Shanghai Shibei Gaoxin Group, told reporters in a media briefing on Wednesday that three to four companies based in the Shibei Hi-Tech Park it manages are expected to float shares on the mainland’s stock market each year between 2024 and 2028, compared to just one prospective IPO this year.

“The pace of stock market listings is set to pick up amid the implementation of the registration-based IPO system,” said Chen. “Promising tech start-ups will actively seek to raise funds on the domestic stock exchanges.”

Chen’s remarks come three weeks after the China Securities Regulatory Commission (CSRC) announced sweeping changes to the rules governing new share sales, which will facilitate fundraising for companies while giving market forces full sway over share pricing.

The securities regulator solicited public opinion on the new rules until February 16, before officially implementing them the next day. The CSRC said it would fully relinquish its role in reviewing IPOs, transferring the vetting power to the country’s stock exchanges.

Companies selling shares on the Shanghai and Shenzhen stock exchanges will for the first time be given the freedom to price their shares based on market demand. Listing requirements, such as track records for revenue and profit, have been eased to pave the way for companies from fledgling industries to go public.

Under the registration-based system, the exchanges will require full information disclosure by companies once they submit their listing applications.

Applicants will receive the green light to raise funds on the stock market once the exchange confirms the veracity of the disclosures.

“Shibei Hi-tech Park, backed by the Shanghai government, has already attracted start-ups with good prospects,” said Ivan Li, a fund manager at Loyal Wealth Management in Shanghai. “The number of IPOs by companies in that area will jump after IPO rules are eased.”

Shibei Hi-tech Park, based in downtown Jingan district, is home to more than 3,000 companies in the fields of computing, artificial intelligence, big data, blockchain and software.

Its parent, Shibei Gaoxin Group also operates investment businesses and Chen said the group would continue to invest in promising start-ups to support their growth and expansion.

“The Shanghai government’s support for tech firms effectively helped us survive the Covid-19 pandemic last year,” said Liu Chen, board secretary of Intsig Information, an AI firm based in the Shibei hi-tech park. “The state-owned landlord exempted us from paying rent for months while cutting taxes for us.”

While China has the world’s second-largest stock market, with a market value of US$11 trillion, the system for new share offerings has long been an issue, offering fertile ground for wrongdoing and dereliction of duty.

For example, Yao Gang, a former vice-chairman of the securities regulator known as the ‘King of IPOs’, was sentenced in 2018 to 18 years in prison after being found guilty of taking 69 million yuan (US$10.2 million) in bribes and pocketing 2.1 million yuan from insider trading, according to a court statement at the time. South China Morning Post