► Technology startups opting for the Star Market are likely to raise more capital through IPOs.
► Recent financial reforms have the potential to become the ‘great equalizer,’ affecting the way China’s IPO pendulum swings – towards the Pearl or Yangtze river delta, for instance.
This article is a part of EqualOcean's 'The Star Market Overview 1Q 2020' report.
Over time, the digital-savvy Chinese government has tried various methods to foster innovation by opening new channels to capital for its fledgling technology startups. In 2009, the Shenzhen bourse welcomed ChiNext, the country’s first Nasdaq-esque stock marketplace. A decade later, the reforming spirit reached Shanghai, where the Sci-Tech Innovation Board, dubbed the Star Market, kicked off trading in July 2019.
‘Coopetition’ is how the relationship between the two stock platforms could be described. On the one hand, both institutions benefit from China’s ongoing financial sector reform. But a collision of interest, indeed, exists, too. After all, the Star Market and ChiNext are closely competing for a limited pool of potential listings.
Recently, the two have been doing quite well, despite the global turbulence. In the first quarter of 2020, they were on the top of the world in terms of performance over the three-month period, also overshadowing the Shanghai and Shenzhen bourses’ main boards by the number and total proceeds volume of fresh IPOs (leaving out of account Beijing-Shanghai High Speed Railway's debut in January). Here, we look into the top five largest offerings that happened over this period in the two high-tech-focused venues in China’s mainland.
There are several crucial findings that arise from this comparison – especially in the key differences between the profiles of the top listings.
It should not go unmentioned that two out of the five Star Market-listed companies that have recorded the biggest IPO proceeds haven’t had significant revenues yet. Biopharma developers Zelgen (688266:SH) and Bio-Thera (688177:SH) so far haven’t sold a single drug, with dozens of current projects in their R&D pipelines.
This pair of firms chose the fifth standard, the Shanghai marketplace’s feature that requires applicants to have a projected market valuation of at least CNY 4 billion (USD 557.6 million) and possess a strategic potential that can lead to breakthroughs in certain industries – medicine is one of them.
Another easy-to-see trait of the Star Market is relatively huge IPOs. Taking the last-year sales revenue as a benchmark, we matched it with the amounts of money raised by newly traded enterprises on their first days of public life. While for ChiNext’s ‘leaders’ the proceeds-to-revenue ratio is less than 0.6, its counterpart boasts a level higher than 1. That said, the Shanghai submarket can arguably provide more room for capital-hungry tech startups.
Read more about other advantages of the Star Market in the latest EqualOcean quarterly report.
The sci-tech board has, in many respects, yanked the card out of ChiNext’s hands. Meanwhile, the local regulators have put an ace into Shenzhen’s sleeve, making yet another upgrade of the country’s securities law.