SEMICONDUCTOR Manufacturing International Corp (SMIC), which is listed on the Hong Kong stock exchange, plans to raise 20 billion yuan (US$2.86 billion) in what will be the biggest initial public offer on Shanghai’s STAR Market.

The share sale comes as STAR is about to mark its first anniversary and as tensions between the US and China persist. The US has said it will tighten export controls on technology to China and will seek to place stiffer restrictions on Chinese companies listed there.

SMIC withdrew its listing on the New York Stock Exchange a year ago. The company makes chips used in smartphones, TVs, cameras, home appliances and the automotive industry.

China, as the world’s largest importer of chips, wants to increase home manufacturing capability and reduce reliance on the US.

The Star Market, which was officially launched on June 13 last year, is a Nasdaq-style exchange aimed at helping startups and other innovative technology companies raise funds. Its rarely used formal name is the Shanghai Science and Technology Innovation Board.

After much hoopla and initial success, market trading volumes began sagging last autumn but have since rebounded with strong chip shares.

SMIC’s listing “creates a demonstration halo for all industry players,” said Amos Fang, principle analyst of the technology research center at Cinda Securities. “High-tech firms with core technologies are welcomed to list here at home and enjoy high valuations.”

STAR has created a number of firsts, thanks to its relaxed listing thresholds, its more flexible trading rules and its position as a facilitator in Chinese economic reforms.

The exchange, for example, allows dual-share structures, whereby a company can have more than one class of shares, each with different voting rights. It’s a way for founders to retain control over their companies.

STAR rules also allow spin-offs among listed firms, no price range limits on the first five trading days, and a daily price trading range up to 20 percent on successive days. The Shanghai Stock Exchange, by comparison, has a 10 percent limit on how much share prices can rise or drop in a single day.

As of May 27, the STAR Market had more than 105 listed firms with aggregate market capitalization of 1.5 trillion yuan. It has become an attractive platform for high-profile Chinese technology firms listed offshore to come home and trade.

Even the outbreak of COVID-19 didn’t damp IPO activity on the market, analysts said.

In January, Shanghai-based semiconductor vendor Advanced Micro-Fabrication Equipment Inc became the first STAR-listed firm to be valued over 100 billion yuan (US$14.3 billion), six months after its board debut.

By Monday, there were three STAR-listed firms in that same category, with the addition of Kingsoft Office Software Inc and Montage Technology Co.

SMIC’s home listing on STAR is expected to result in an equally high valuation. Analysts are predicting the company will have a price-to-book ratio of 6, triple its valuation in Hong Kong,

Generally speaking, firms listed on the STAR Market enjoy higher valuations than those on the Growth Enterprise Market, a technology-focused board in Shenzhen, or those in the same sectors listed in Hong Kong, said Fang.

In the first quarter, the value of most STAR Market IPOs had price-to-earnings multiples higher than 30, compared with 22 percent or lower on other domestic markets, Deloitte said in a report.

This year, STAR is expected to draw a record 120-150 IPOs, raising between 130 billion yuan and 160 billion yuan. That would equal the combined IPOs forecast for other exchanges in Shanghai and Shenzhen, according to Deloitte.

As of May 27, 304 firms had applied to list on STAR, including more than 100 firms seeking approvals for listing.

Core technology

The applicants are in high-tech industries with “core technology and innovations” and firms “representing national strategy development,” the parent Shanghai Stock Exchange said.

Among the applicants, companies involved in next-generation information technology accounted for 34 percent. That was followed by companies in biomedicine, advanced equipment, new energy, environmental protection and energy efficiency.

All of the companies employ research engineers as 29 percent of their workforces, according to the exchange.

UCloud started trading on the STAR Market in January as the first dual-class share structure company on a domestic stock market.

“This structure is widely needed in the Internet industry,” UCloud Chief Executive Ji Xinhua told Shanghai Daily in an earlier interview.

Shanghai-based UCloud is also the first listed cloud firm on the Chinese mainland. The cloud is a key technology for the 5G phone era and new information age.

Cambricon Technologies Co, an artificial intelligence chip designer, received approval last week for a listing on STAR.

Its IPO raised some eyebrows after the company had just lost its major client and reported 1.6 billion yuan in losses for the three consecutive years to 2019.

Cambricon’s sole major client was Huawei, a leading global information and communications technology company that has drawn the wrath of US officials. Huawei has chosen to adopt its own design for a new processor.

In the first quarter, STAR firms posted a revenue of 26.1 billion yuan, a 9 percent drop from a year earlier, mainly reflecting the impact of coronavirus. But their aggregate profits jumped 14 percent from a year ago as biomedicine and information technology industries contributed positive growth.

In future, China will further push for reforms of the STAR Market, combining flexible trading rules with more clarified standards, said the Shanghai Stock Exchange.

STAR should prepare for the return of more outstanding Chinese technology companies, said Xie Dong, director of the Shanghai Financial Regulatory Bureau.

Key milestones of
SSE STAR Market

2018-November

President Xi Jinping announced that the STAR Market will be established in Shanghai.

2019-June 13

China inaugurated SSE STAR Market as a new sci-tech board.

2019-July 22

Trading started with 25 shares.

2019-December 9

Semiconductor firm Suzhou HYC Technology Co announced the first merger and acquisition deal among STAR companies.

2020-January 19

Semiconductor firm AMEC became the first STAR-listed firm with a market value over 100 billion yuan (US$14.3 billion).

2020-January 20

Shanghai-based cloud service provider UCloud became the first company listed on the Chinese mainland with a dual-class share structure.

2020-February 13

Kingsoft Office Software became the first STAR-listed company to be added to MSCI’s China share index.

2020-February 17

China Resources Microelectronics Ltd became the Hong Kong “red-chip” firm to trade on the STAR Market, surging 228 percent on its debut.

2020-March

The Shanghai Stock Exchange announced updated rules for its STAR Market.

2020-April

STAR Market homed to 100 listed companies.

2020-June 1

SMIC, the biggest chipmaker on the Chinese mainland, announced its plan to raise 20 billion yuan through a listing on the STAR Market.

2020-June 13

STAR Market is to celebrate its first anniversary.