Ex­change proves prime route to main mar­ket

China Daily (Canada) - - BUSINESS - By CAI XIAO caix­iao@chi­nadaily.com.cn

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.”

PRO­VIDED TO CHINA DAILY

A qual­ity con­trol worker of Zhe­jiang Yili Cap­sule Co Ltd tests cap­sules on Tues­day in Xin­chang, Zhe­jiang prov­ince.

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