(Yicai  Global) March 25 -- The Chinese arm of Swiss investment bank UBS Group  aims to conduct business related to Shanghai's upcoming sci-tech  innovation board, according to its general manager.

"We  will definitely participate in all aspects," Eugene Qian, general  manager of Beijing-based UBS Securities, told Yicai Global in an  exclusive interview on the sidelines of the 2019 China Development Forum  in the capital. UBS Securities is China's first broker controlled by  foreign capital as parent UBS Group holds a 51 percent stake.

The  sci-tech board not only means a new part of the stock market but it  also provides huge opportunities for foreign investment banks, Qian  said, adding that the registration-based initial public offering system  is also noteworthy. 

The  securities issuance authority is only in charge of examining whether  the information and material provided by applicants fulfill obligations  related to information disclosure under the registration-based system.  It carries out pro forma reviews and won't make substantial judgments. 

UBS Involvement

UBS  Securities has paid close attention to the board since President Xi  announced its roll-out in November, Qian said, adding that it has also  actively participated in discussions organized by regulators. UBS  Securities can serve listers on the board in terms of investment banking  and proprietary trading and does not need to apply for additional  licenses.

The  investment bank needs to establish a relatively competitive industry  team to handle IPO business to more deeply understand the needs of  companies, he said. This may be a relatively big challenge for most  domestic securities firms, he added.

Each  procedure, including searching for listers, due diligence, prospectus  writing, application material submissions and follow-up research  reports, tests the expertise of investment banks, he said. The  investment banking model, which relies heavily on close relations with  the regulator by virtue of strength in licenses and channels, will no  longer be competitive under the registration-based system. 

This  may lead to increased market concentration in the sector with the  advantages of top players becoming increasingly prominent. Joint  sponsoring may also emerge with several agencies serving one company  together. 

For  large unicorns, small brokers may find it hard to assemble investors  willing to spend several billions of yuan in a short time, Qian said. It  will also be difficult to find investors able to subscribe to five or  six times the IPO shares. More mergers and acquisitions may arise in  China's brokerage sector, home to over 130 players at present. 

Pricing Is Key

The board will favor promising innovative firms and pay less attention to profit records.

The  company needs to show investors that returns will emerge later, it will  make profits in two or three years even it loses money currently.  Companies listed on the board are allowed to earn fewer profits than  those on the main board initially but there must be growth in the  future, Qian says. 

Some  market participants were quite surprised at the first list of companies  that will list as since several highly-anticipated star firms were not  included. 

This  is conducive to steadily advancing the board instead, Qian believes.  Shares in better-known firms may fall below IPO prices shortly after  their listing due to excessive valuations on the primary market as  capitals pay close attention to them, he added. 

Being  able to go public is just the first step, Qian said. It is uncertain  whether listers can maintain continuous growth for three to five years,  even eight to ten years and bring long-term returns to investors. Only  those which can grow continuously and bring investors long-term returns  are good companies, he added. 

Investment  banks need to do quite professional work to discover such companies for  investors and provide reasonable IPO prices, Qian added. 

Editor: William Clegg