China's New Sci-Tech Board Demands Listing Applicants Are Worth at Least USD597 Million
Lin Zhiyin
DATE:  Mar 06 2019
/ SOURCE:  yicai
China's New Sci-Tech Board Demands Listing Applicants Are Worth at Least USD597 Million China's New Sci-Tech Board Demands Listing Applicants Are Worth at Least USD597 Million

(Yicai Global) March 6 -- The new science and technology board opening on the Shanghai Stock Exchange, revered for expectations it will help non-profitable companies raise cash, will require listing companies to be worth at least CNY4 billion (USD597 million).

The firms' main businesses should also be approved by authorities and in a sector with a large market, the Shanghai Stock Exchange said when unveiling the rules on March 1. The applicants must also have at least one core product approved for phase two clinical trials.

The new board is intended to circumvent rules on the Chinese mainland's main boards that dictate companies must be turning a profit before listing. But despite the seemingly eased requirements, the firms must still be worth more than three times the minimum amount they would need to be to go public in Hong Kong -- HKD1.5 billion (USD191 million).

"Biopharmaceutical companies need money most during their clinical research and new drug development stages," Nie Liya, deputy general manager of Northland Biotech, told Yicai Global. "They can quickly earn a lot of income once a drug successfully hits the market, but then they are less willing to raise cash."

The United States' Nasdaq has a similar requirement for biopharmaceutical companies. It allows early-stage investors to exit and has created a number of innovative drug makers, such as Genentech, Amgen, Genzan and Biogen. Nearly a third of the more than 2,000 companies listed on the bourse are in pharmaceuticals.

Hong Kong opened up to non-profitable biopharmas in April last year, one of the exchange's biggest amendments of the past 25 years. Five mainland firms that are not yet turning a profit have listed in the special administrative region so far.

"The trading rules for the sci-tech board are reasonable in terms of bidding and information disclosure -- similar to Hong Kong," said Xu Wei, chairman of Alphamab Biopharmaceuticals. "But the threshold for listing, like the market value requirement, is much higher than other markets. Our company issued stocks in Hong Kong as we're not qualified to go public on the new board because of our market value."

The sci-tech board should consider protecting the interests of smaller investors, Nie added, though how to determine how innovative a company is can be difficult. "Either way, allwing unprofitable biopharmas to go public is a major step forward in the mainland capital market," he said.

Biopharmas Hold Back

Many people at the helm of Chinese biopharmaceutical companies are still playing a wait-and-see game before they opt to go public on the new board, they told Yicai Global.

"It's inevitable that the capital market would allow unprofitable biomedical firms to go public," said Zhang Jiancun, chairman of Henovcom Bioscience. "The prosperity of this industry in the US is a direct result of a similar listing mechanism. It takes time for the new board to mature though. Companies going public need to know what their core strengths are -- it's definitely possible for us to consider listing on the new board."

Fang Xiangsheng, chief financial officer of Adlai Nortye Biopharma, is not convinced that mainland investors are keen on investing in non-profitable companies.

"We found in our financing process that many domestic funds are reluctant to invest in biopharma firms which have had no income for one or two years," he said. "This fully reflects how investors are not yet familiar with the biomedical sector and don't know how to assess it."

The executives may be wise to hesitate. Ascletis Pharma and Beigine, the first two unprofitable mainland pharmas to list in Hong Kong, completed their public offerings in August and their shares still sit below issue price.

The Hong Kong bourse's Chief Executive Charles Li has also admitted that the market needs a few more years to mature. It stands to reason that the mainland board for such listings will also need time to ripen.

The most important thing is that companies choose to list in a market most suitable to their own development, Yuan Ji, general manager of Guangzheng Hang Seng Securities Investment Advisory, told Yicai Global. China is steadily improving its multi-level capital market, and it will have different liquidity and listing requirements for companies during the various stages of development, he said.

Editor: James Boynton

Follow Yicai Global on
Keywords:   Sci-Tech Board,Biopharmaceuticals