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Regulator rolls out norms for GEB

By Bi Xiaoning (China Daily)
Updated: 2009-04-01 08:07

An investor at a brokerage in Haikou. [Shi Yan]

China's securities regulator has released guidelines for a NASDAQ-like second board, or growth enterprise board (GEB), which will be effective from May 1.

The China Securities Regulatory Commission (CSRC) said on its website yesterday that the steps to introduce the GEB would include regulations on listing applications, prospectus and sponsors.

Related readings:  GEB gets ready for fast rollout  Regulator to roll out GEB norms  Growth enterprises board to be launched

"The CSRC will establish a special issuance examination committee for GEB and the Shenzhen Stock Exchange is to roll out the specific regulations on listing and trading. The securities regulators will accept the application material after all the preparatory work is ready," said a CSRC spokesman.

In a move to control the risks at the initial stage, the threshold for companies listed on the GEB would be higher than their counterparts in overseas markets, but much lower than the IPO rule on the main board.

The rule requires firms to have a minimum of 10 million yuan of accumulated net profits in the two years prior to listing, compared with at least 30 million yuan in the previous three years that is required for a listing on China's main boards.

According to the guidelines, companies that seek listing on the GEB should also report profits of at least 5 million yuan for the most recent year on revenues of at least 50 million yuan, with annual revenue growth of at least 30 percent in the recent two years.

"The CSRC solicited public opinion on the draft regulations of the GEB in March 2008 and got feedback from 688 respondents. After comprehensive analysis, we kept the requirements unchanged on the companies' profitability capacity and growth rate, while highlighting the risks for investors," the spokesman said.

China had started discussions on a listing avenue for growth-oriented companies a decade ago. In 2004, a mini second board for small- and medium-sized enterprises (SMEs) was set up at the Shenzhen Stock Exchange to test the waters.

Venture capital firms and SME entrepreneurs have welcomed the plan as a way to spur more investment into small companies that otherwise have trouble obtaining capital.

"It's really the right time to roll out the GEB this year. In an economic downturn, the participants can benefit from the lowered cost on transaction and investment with low PE (price-earnings) ratio," said Xiong Xiaoge, the founding partner of IDG Technology Venture Investment (IDGVC).

According to TX Investment Consulting Co, only 2 percent of the capital raised by SMEs was from direct financing, while the rest rely on banking loans.

"The SMEs in Wenzhou are quite excited to see the resumption of the IPO market. About 200 companies are in the pipeline to get listed and one-third prefer to go public on the GEB," said Zhou Dewen, head of the Small- and Medium-sized Business Association in Wenzhou.