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2023
Record number of IT IPOs due to overwhelming demands on them
In 2023, a record number of Chinese tech startups abandoned an initial public offering (IPO) at Shanghai's Star Market site. This is stated in the study, the results of which were released at the end of October 2023.
According to the Financial Times, 126 companies have canceled or suspended IPO applications for Star Market since the beginning of 2023. That's up from the previous four years combined. The reason is the sharp tightening of requirements for IT companies.
In accordance with the new rules approved by the PRC authorities, local startups filing for IPOs must not only be profitable, but also prove to regulators the prospects of their business. In particular, Chinese companies that want to go public are obliged to demonstrate that their project is not inferior to world leaders in the relevant area. In addition, it is necessary to demonstrate that the proposed business model is sustainable, which is especially important in the current macroeconomic situation and sanctions by the United States.
The Star Market site was originally created by the Chinese authorities in 2019 in order to help young technology companies attract the necessary funding. However, in light of the new requirements, obtaining a listing on this platform has become inaccessible to many startups. The Chinese authorities believe that the new rules will help direct resources to those companies that have the greatest potential. But market participants believe that tightening requirements will lead to a slowdown in innovation and a deterioration in financing opportunities for high-potential companies. Official figures suggest that nearly two-thirds of IPO applicants failed to win approval in the first nine months of 2023, up from less than a quarter in 2022.[1]
Chinese SSD manufacturer BIWIN holds IPO
On January 2, 2023, the Chinese company BIWIN Storage Technology Company Limited announced the conduct of the procedure for the primary public issue (IPO) of securities. Shares began trading on the Shanghai Stock Exchange STAR Market. Read more here.
2019: Exchange launch
On July 22, 2019, the Star Market exchange was launched in Shanghai, which became an analogue of the American Nasdaq. The Chinese site is aimed at local technology companies.
On the first day of Star Market, trading in shares of 25 companies began. Their total market capitalization by the end of the session amounted to 305 billion yuan (about $44.3 billion) against 225 billion yuan at the beginning.
To participate in the auction on the Star Market, potential investors must have financial assets of at least 500 thousand yuan (about $73.5 thousand) in accounts in class "A" shares, as well as have at least two years of experience in participating in the auction. Foreign capital will also be able to bid through various qualified programs of foreign institutional investors in China.
The launch of the site caused a lot of excitement among investors. According to the results of the first day, the quotes of companies that placed shares on the Star Market rose by an average of 140%. 4 companies out of 25 securities have risen in price by more than 200%, 16 - by more than 100%.
The largest growth was demonstrated by chip maker Anji: in the course of trading on July 22, 2019, the share price rose by 520%, and by the close of the exchange, the increase was about 400%. IT service provider Montage Technology saw its daily share price increase by 285%.
The worst dynamics among the 25 participants in the Star Market was shown by the developer of solutions for computer vision Harbin Xinguang Optic-Electronics Technology, whose securities rose 84% by the time the exchange closed.
In the first five days of Star Market, there will be no restrictions on the dynamics of quotations. Going forward, stocks will be allowed to rise or fall a maximum of 20% a day before suspending trading. There are other indulgences - for example, permission to trade in shares of different classes for companies and the ability to sell individual shares for investors. On other exchanges in China, this is prohibited.[2]
Notes
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