Home » Helen Yan

IPO Criteria Comparison of Main Board and Venture Board

Submitted by helen1010 on Mon, 2008-09-01 16:50.
Tags:

On March 21, 2008, China Securities Regulatory Commission (“CSRC”) issued the Administrative Measures for Initial Public Offerings and Listing on the Venture Board (Soliciting Public Opinion Draft). The following is the comparison of IPO criteria between main board (including Shanghai Stock Exchange and Shenzhen Stock Exchange) and the proposed venture board for reference:

  Main Board Proposed Venture Board (Soliciting Public Opinion Draft)
Issuer Qualification Duly incorporated and legally exists joint-stock company. Duly incorporated and lawfully exists joint-stock company.
Years of Operation Having been operating continuously for over 3 years (for limited liability company which is converted into a join-stock company by wholly converting its original net book value of assets into shares, the terms of operation may be calculated as of the date when the limited liability company is established.) Having been operating continuously for over 3 years (for limited liability company which is converted into a join-stock company by wholly converting its original net book value of assets into shares, the terms of operation may be calculated as of the date when the limited liability company is established.)
Profitability

(1) Accumulative net profit for  most recent 3 financial years is positive and exceeds RMB30 million, the net profit is calculated on the basis of comparatively low net profit upon deduction of non-regular profit/loss;

(2) Accumulative net cash flow exceeds RMB50 million, or accumulative business income exceeds RMB300 million for the most recent 3 financial years;

(3) No uncovered deficit for the latest period.

Having been making profits consecutively for the latest 2 years, and its accumulative net profit for the latest 2 years is not less than RMB10 million and has been growing continuously;

Or

The issuer made profit in the latest year and its net profit is not less than RMB5 million, its business income in the latest year is not less than RMB50 million and the growth rate of its business income in the latest 2 years is not less than 30%
Assets The proportion of the latest intangible assets (upon deduction of land use rights and mining rights etc.) and the net assets is not more than 20% for the latest period. The net assets prior to offering are not less than RMB20 million
Capital Stock The total amount of capital stock prior to offering is not less than RMB30 million. The total amount of capital stock post offering is not less than RMB30 million.
Principal Business The issuer’s principal business has no material changes for the latest 3 years. The issuer shall focus on one major business and its principal business has no material change for the latest 2 years.
Directors & Senior Managers No major changes for the latest 3 years No major changes for the latest 2 years
Actual Controller There is no alteration of the actual controller for the latest 3 years There is no alteration of the actual controller for the latest 2 years
Horizontal Competition The issuer’s business shall not have any horizontal competition with its controlling shareholder, actual controller and any other enterprises under its control. The issuer’s business shall not have any horizontal competition with its controlling shareholder, actual controller and any other enterprises under its control.
Arm’s Length Transaction The issuer shall not have any unfair arm’s length transaction. The arm’s length transaction price shall be fair. Profit manipulation by arm’s length transaction is prohibited. The issuer shall not have any unfair arm’s length transaction which is seriously affect the issuer’s business independence.
Growth Potentiality & Innovation Capacity n/a

The issuer shall have growth potentiality and innovation capacity, shall have competitive advantages with respect to technology and management innovation etc.

Specifically, the following industries referred to as “2 high and 5 new” may take into consideration:

  1. High Tech：The issuer has its own IP rights;
  2. High Growth：The issuer’s growth rate is higher than the state and the industry’s growth rate;
  3. New Economic：1）combination of internet and traditional economic  2）telecommunication   3）biological and pharmaceutical；
  4. New Services：new service patterns in the area of : 1）finance  2）logistics   3）real estate；
  5. New Energy Resources: development and utilization of regenerative energy resources；
  6. New Material：may enhance the utilization efficiency of resources；resources saving

New Agriculture: agricultural industrialization
Use of Proceeds The raised proceeds shall be used for specified purposes, and as a general principle, shall be used for its principal business.

The raised proceeds shall be used for specified purposes and can only be used for principal business.

Restriction Conducts

(1) Where its operational mode or variety structure of products and services has been or will be greatly changed, thereby inflicting a major negative impact on its capability of making profits continuously;

(2) Where its industrial status or business environment has or will greatly change, thereby inflicting a major negative impact on its capability of making profits continuously;

(3) Where its business incomes or net profit for the most recent financial year mainly depends on its associated parties or on any clients with great uncertainty;

(4) Where its net profits for the most recent financial year mainly comes from the proceeds as generated from investment beyond the scope of consolidated financial statements;

(5) Where the issuer bears risks of negative change in obtaining or utilizing such important assets and technologies as trademark, patent, exclusive technologies and franchise; or

(6) Where it is under any other circumstance where its capability of making profits continuously is negatively affected.

 (1)Where its operational mode or variety structure of products and services has been or will be greatly changed, thereby inflicting a major negative impact on its capability of making profits continuously;

(2) Where its industrial status or business environment has or will greatly change, thereby inflicting a major negative impact on its capability of making profits continuously;

(3) Where its business incomes or net profits for the most recent financial year mainly depends on its associated parties or on any clients with great uncertainty;

(4) Where its net profits for the most recent financial year mainly comes from the proceeds as generated from investment beyond the scope of consolidated financial statements;

(5) Where the issuer bears risks of negative change in obtaining or utilizing such important assets and technologies as trademark, patent, exclusive technologies and franchise; or

(6) Where it is under any other circumstance where its capability of making profits continuously is negatively affected.
Illegal Conducts Having unlawfully publicly offered without an approval from the statutory authority for the latest 36 months. The issuer does not commit any major illegal acts which damage the legitimate rights and interests of investors and public interests in the latest 3 years; the issuer and any of its shareholders have not publicly offered securities either directly or indirectly without approval in the latest 3 years.
Issuance Review Committee The issuance review committee of the main board consist 25 commissioners. Establishing issuance review committee of the proposed venture board, the commissioners of two boards are different from each other.
Preliminary Review The preliminary review shall solicit opinion from provincial government and State Development and Reform Commission N/A
Other Requirements applicable to Venture Board N/A

1. The business performance of the issuer shall not be greatly dependent on tax preference;

2. The issuer shall perfect its corporate government and shall establish an audit committee and emphasize independent directors and controlling shareholders’ responsibilities;
3. The sponsor shall make investigation on the growth potentiality of the issuer with due diligence and issue special opinion thereon;
4. The controlling shareholders shall issue affirmative opinion for the prospectus;
5. The issuer shall state at a prominent place of the prospectus that: “The stocks issued hereby are to be listed on the venture board, which has a relatively high investment risk. Companies listed on the venture board share such characteristics as instability in performance and high risk in business operations, and investors will face relatively active market fluctuations. Investors shall have fully knowledge about the risks of venture board and the risk factors disclosed by the issuer, and make relevant investment decisions in a prudent manner.

6. The issuer does not need to prepare prospectus summary document.

(This article is prepared for reference purpose only, and should not be construed as legal advice. You are welcome to send your comments to the author.)

Author: Helen Yan - Attorney at Law, Member of PRC Bar Association
Tel: 0756-3229508 Mobile: 13928008926
Email: yanhailing@yahoo.com

»