Tech board fear as investment, lock-in terms set

Business | Bloomberg 18 Apr 2019

Chinese authorities said sponsors of initial public offerings on its forthcoming technology-focused listing venue will need to invest in as much as 5 percent of the shares issued by their clients, an unusual requirement that may limit foreign interest in leading deals on the new bourse.

Sponsors and their units should hold stakes for at least 24 months, the Shanghai Stock Exchange said in a statement, an arrangement virtually unheard of in global markets.

The rules may be an attempt to ensure investors are protected on the so-called tech board, which will have a lighter regulatory regime than the rest of China's equity markets, according to Roy Smith, emeritus professor of finance at New York University.

"The idea is to make sponsors/underwriters more conservative in promoting IPOs that seem hot, with 'skin in the game,'" he said by e-mail. "Chinese sponsors may be willing to take on this risk for various local reasons. Foreign banks, maybe not."

Regulators have been working to implement the Science and Technology Innovation Board, which was first announced by President Xi Jinping last year and is expected to help China stem an exodus of new economy IPOs.

While the ownership rules run counter to international practices, they may not have much of an impact in the domestic market. Of the 79 applicants for the tech board, none has an international firm acting as sponsor, though one deal is sponsored by Citi Orient Securities, a joint venture that Citigroup will shortly depart from.

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