Exchange proves prime route to main market
in Xinchang, Zhejiang province
China’s over-the-counter market, or the New Third Board, has helped small and medium-sized enterprises raise 26.47 billion yuan ($4.07 billion) so far this year, the latest figures from the National Equities Exchange and Quotations reveal.
As of Monday, the number of firms on the board had reached 5,906, with average daily trading value at 610 million yuan, and increasing numbers of firms are now adopting the financing platform as a faster way of getting listed on the A-share market, officials said.
Now China’s third-biggest equity market, the New Third Board was initiated in 2006 as an experimental platform for small- and medium-sized enterprises to transfer shares.
The present system, known as the National Equities Exchange and Quotations, was officially set up in January 2013, after years of trials in cities including Shanghai, Wuhan and Tianjin.
It complements the existing main board, the SME board and the ChiNext board, and the latest numbers show it is fast being accepted by SMEs as an easier financing channel, with low costs, simple listing procedures, and a short application period for startup firms unqualified to be listed on major exchanges.
There were just 496 companies listed at ChiNext board by Tuesday, but the daily trading value totaling 81.1 billion yuan, the latest figures show.
“Although the New Third Board has been an important financing platform for SMEs, liquidity and exit channels remain challenges for listed companies and investors,” said Eric Xin, senior managing director at Citic Capital.
Last week, the securities regulator said the third national equity market will divide its listed companies into two markets — and innovation and a basic market — from May, a move aimed at better meeting the requirements of SMEs, and to improve efficiency, said the CSRC.
Zhejiang Yili Capsule Co Ltd, a capsule producer in Xinchang, Zhejiang province, was listed on the New Third Board in 2015 and is typical of the type and size of company now using the platform.
It plans to hold two or three private placements this year, said Zhu Junwei, its general manager, with the funds raised to be used to upgrade its production lines and on possible mergers and acquisitions.
Yili Capsule has 36 production lines, six of which are considered intelligent and automatic which can each produce about 2.5 million capsules daily.
The firm plans to invest about 42 million yuan upgrading another 14 production lines this year, while its M&A targets, said Zhu, are likely to be capsule companies equipment with the latest production methods.
The company is targeting annual sales of 120 million yuan in 2016, a 20 percent rise, with profits expected at 25 million yuan, which would be 67 percent increase, said Zhu.
“We aim to be one of the top three capsule manufacturers in China within three years through technology upgrading and M&As.”
Zhejiang Siling Automobile Bearing Co Ltd is another company which plans to use the New Third Board as a steppingstone for expansion.
It plans to raise about 200 million yuan from the board through private placement in 2016, its General Manager Jiang Ling told China Daily.
“The funds will be used to build our new factory and for mergers and acquisitions,” said Jiang.
“We aim to achieve annual revenue of more than 200 million and net profit of 15 million yuan this year,” said Jiang, but he said liquidity remains a problem on the New Third Board, “as there are limited ways of transferring shares and the investor barrier is high”.
He explained that companies can only choose to trade their shares on the New Third Board through contract transfer, or by selling them to market makers — the securities firms.
Qualified investors on the market should each have investable funds of no less than 5 million yuan.
“So we are planning to get listed at the A-share market in three years,” said Jiang.
We aim to be one of the top three capsule manufacturers in China within three years.”
A quality control worker of Zhejiang Yili Capsule Co Ltd tests capsules on Tuesday in Xinchang, Zhejiang province.