China Weighs Tighter Rules on STAR Board IPOs, Fintech Curbs

(Bloomberg) -- China is considering tighter rules for first-time share sales on Shanghai’s Nasdaq-style STAR board that will require firms to prove their technology credentials and raise the bar for companies such as Ant Group Co.

The China Securities Regulatory Commission may introduce revised rules as soon as next month, placing greater emphasis on hardcore technology and innovation, said people familiar with the matter, who asked not to be identified as the discussions are private. There will also be increased scrutiny on financial health to boost the quality of companies and protect investors, they said.

While not aimed at any specific sector, the tighter rules would make it harder for financial technology firms such as billionaire Jack Ma’s Ant to list on the venue, as the exchange plans to review their applications more carefully, the people said.

Authorities are seeking to tamp down on the bevy of sub-par firms that have rushed to raise funds to take advantage of lax oversight and high valuations, many chasing investor appetite for technology listings. Regulators have also pledged to rein in China’s fintech firms, a move marked by the abrupt suspension of Ant’s $35 billion listing and a flurry of new rules that have been unleashed on the sector.

The CSRC didn’t immediately respond to a request seeking a comment. The Shanghai Stock Exchange declined to comment.

The new proposal may add further difficulties for Ant to revive its listing plans and weigh on its valuation as regulators sort through details of a fintech industry overhaul. The sector should be developed in a “prudent” manner and China aims to create a “deviation correction” mechanism to fix and suspend innovative financial products as needed, according to the nation’s 14th five-year plan setting policies from 2021 to 2025.

With the tighter rules being talked about among mainland bankers, several companies have now been urged to drop their IPO plan from the STAR board, the people said. Some may look to list on Shenzhen’s Chinext board instead.

Deal Rush

Companies can also pursue listings on Shanghai’s main board.

PricewaterhouseCoopers forecast in January that at least 150 companies may seek listing on the STAR market this year, compared with 145 in 2020. Together they may raise as much as 210 billion yuan ($32 billion), nearly double the estimated amount of fundraising at the main board.

Chinese regulators are walking a fine line in attempts to liberalize its stock market while protecting the interest of retail investors. In November, the Shanghai exchange cited a “significant change” to Ant’s business and earnings model in the wake of changing regulations and the need to protect investors as it put a stop to Ant’s blockbuster listing, upending what would have been the biggest market debut in history.

JD Technology, the fintech unit of JD.com, is likely to drop its planned IPO on the STAR market amid changing business circumstances after Ant’s debacle, South China Morning Post reported this week.

Testing Ground

The Nasdaq-style trading venue was rolled out in 2019 as a testing ground that allowed streamlined registration-based IPOs, eased caps on valuations and price swings in the first few days of trading. More than 230 companies have debuted since then, including giants such as Semiconductor Manufacturing International Corp. and Bloomage Biotechnology Corp.

A promising pipeline 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.

Still, concerns are rising on the quality of listed companies. The Shanghai bourse said last month that in a recent attempt to conduct on-site check of nine companies seeking IPOs on the STAR market, seven of them decided to withdraw the applications after receiving the notice.

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With assistance from Bloomberg