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September 15, 2009

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China set to vet firms for entry to GEM board

CHINA'S long-awaited Nasdaq-like board for fledgling firms in innovative industries will take an important step closer to launch on Thursday when regulators review the first batch of listing applicants.

Trading could begin on the Shenzhen-based growth enterprise market as early as next month after preparations dating back a decade.

The seven companies in the first group range from electronics to software to pharmaceutical firms. They plan to raise a total 2.25 billion yuan (US$329 million) in their initial public offerings. Lepu Medical Technology (Beijing) Co is going for the most: 517 million yuan.

Industry analysts said the new board will help these small cash-starved firms find the financing to grow into larger enterprises. And because the size of the IPOs will be comparatively small, the new investment options shouldn't divert significant liquidity from the main boards in Shanghai and Shenzen.

"The Shenzhen GEM will have limited impact on the main boards in terms of its market value and turnover," said Sun Jian, an analyst at Shenyin Wanguo Securities Co. "Overseas GEMs such as (New York's) Nasdaq and (South Korea's) Kosdaq didn't absorb a lot of capital or change the trend of the main boards."

The other companies in the first group up for vetting are Nanfang Ventilator Co, Beijing Lanxum Technology Co, Ultrapower Software Co, Chongqing Lummy Pharmaceutical Co, Shanghai Bestway Marine Engineering Design Co and Qingdao Tgood Electric Co.

"The first companies on the GEM will likely see their shares skyrocket on their trading debuts due to the limited supply and investors' speculative mood," said Liu Yu, an Orient Securities Co trader. "It's urgent for the regulator to allow more firms to trade on the board."

Securities regulators said on Sunday they will review more applications after the first batch in an effort to provide more options for investors and curb speculation.

Since July, listing applications have been submitted by 149 companies that plan to raise a total 33.6 billion yuan.

Net profits

"The collective IPOs won't greatly affect the stock market because the average amount of funds they plan to raise is only 60 percent of the figure for the Shenzhen main board," Liu said.

Companies can list on the GEM with an annual net profit of at least 10 million yuan in the previous two years, or 5 million yuan for one year with sales of at least 50 million yuan.

In contrast, companies on the main boards must show annual net profits of at least 30 million yuan for the previous three years or total sales of more than 300 million yuan.


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