China's New Nasdaq Pushes Back Against Firms Trying to List

(Bloomberg) -- Getting listed on China’s new technology board may not be as simple as companies had hoped, with many filings mired in scrutiny.

The Shanghai Exchange has peppered 100 applicants with about 50 questions each on average, asking about everything from share structure to accounting and intellectual property rights, according to statements compiled by Bloomberg. Until the firms satisfy the exchange on all the points, they can’t proceed with their initial public offerings.

While the grilling may ultimately result in higher-quality listings, it cuts against pledges that China’s new Nasdaq-style board would provide simplified vetting, a speedier process and a reduction in red tape. A comparable attempt to woo tech listings last year, Chinese depositary receipts, foundered after Xiaomi Corp. received 84 regulatory queries and raised cash from a Hong Kong IPO instead.

Many tech board filings received so far lacked sufficient details, contained too much obscure jargon or demonstrated a misunderstanding of the new disclosure-based listing process, the exchange said in a statement last month.

“It may seem like the bar has been lowered without approval from regulators, but in fact it demands higher standards of disclosure and transparency,” said Yang Hai, an analyst at Kaiyuan Securities Co. “Many Chinese companies aren’t that sophisticated, and it’s a challenge for them.”

Company Requests

The Shanghai exchange didn’t respond to calls for comment.

Medical device maker Ankon Technologies Co. was asked to disclose details about a reported case of false advertising, while integrated-circuits maker Espressif Systems (Shanghai) Co. was requested to explain why most of its patents were received before 2015 and whether that meant its research and development had reached a bottleneck. The stock exchange suspended its review of Ninebot Ltd.’s plan to issue depository receipts for listing on its technology board.

The exact start date for the new technology board remains unknown, and could be affected by the ructions in China’s stock market amid the trade war with the U.S. The CSI 300 Index has tumbled 12% since last month’s high and the yuan has also weakened. The board is aimed at encouraging the nation’s innovative companies to list at home rather than seeking overseas listings.

The ChiNext Index of technology companies and small caps fell as much as 0.8% on Tuesday, while the yuan slipped 0.1% in Shanghai, reversing an earlier gain.

The state-backed Securities Times, in a commentary last week, said steady progress had been made since the Shanghai stock exchange started accepting listing applications in March, though it also called for patience.

While applicants grapple with the new registration process, the market will ultimately benefit from deeper scrutiny at this stage, according to Kaiyuan’s Yang.

“It’s better to get it right at this time,” said Yang. “On top of the recent volatility in markets, the quality of the applicants has also been lower than expected.”

©2019 Bloomberg L.P.