China is considering stricter rules for the sale of shares for the first time in Shanghai's Nasdaq-style STAR directory that will require companies to prove their technology credentials and raise the bar for companies like Ant Group Co. There will also be increased scrutiny on financial health to improve the quality of companies and protect investors.
Authorities are trying to stop the group of shoddy companies that have been rushing to raise funds to take advantage of lax oversight and high valuations, many of which are chasing investors' appetite for tech stocks. Regulators have also pledged to curb China's fintech companies, a move marked by the abrupt suspension of Ant's $ 35 billion listing and a series of new rules that have been unleashed in the sector.
The new proposal may add more difficulty for Ant to revive its listing plans and weigh its valuation as regulators review the details of a fintech industry review.
The sector must be developed in a "prudent" manner and China aims to create a "deviation correction" mechanism to fix and suspend innovative financial products as needed, in accordance with the nation's fourteenth five-year plan that sets policies from 2021 to 2025.
Companies can also search for quotes on the main Shanghai board. PricewaterhouseCoopers forecast in January that at least 150 companies may seek to list on the STAR market this year, up from 145 in 2020. Together they can raise as much as 210 billion yuan ($ 32 billion), almost double the estimated amount of fundraising at major Board.
The Nasdaq-style trading venue was implemented in 2019 as a testing ground that allowed for simplified record-based IPOs, lowered limits on valuations and price swings in the first days of trading. More than 230 companies have debuted since then, including giants like Semiconductor Manufacturing International Corp. and Bloomage Biotechnology Corp.
A promising portfolio of deals has also attracted global investment banks, including UBS Group AG and Credit Suisse Group AG, which have relocated bankers to mainland China from Hong Kong to better compete for mandates.
The Shanghai Stock Exchange said last month that in a recent attempt to conduct an on-site verification of nine companies seeking IPOs in the STAR market, seven of them decided to withdraw applications after receiving the notice.