How does "unicorn" return to A shares to avoid excessive hype?

CDR pilot innovation companies are not profitable and can be listed

How does "unicorn" return to A shares to avoid excessive hype?

China Youth Daily · Zhongqing Online Reporter Wang Lin Li Chenhe Intern Zhao Limei

The Chinese Depositary Receipt (CDR) system, which has been rumored, began to be put into trial.

Recently, the General Office of the State Council forwarded the Notice of the CSRC on Several Opinions on Piloting the Issuance of Stocks or Depositary Receipts in Innovative Enterprises (hereinafter referred to as the “Notice”). The "Notice" proposes framework arrangements for the return of the red chip enterprises (registered overseas enterprises with major business activities in the territory) to the domestic capital market, including the preliminary criteria for screening pilot enterprises, the basic arrangements of the CDR system, and regulatory enforcement issues. And made recommendations from the perspective of issuing procedures, information disclosure, and investor protection.

China has created super “unicorn” companies such as BATJ (Baidu, Alibaba, Tencent, Jingdong), but they cannot leave them in the domestic capital market. Can this type of super "unicorn" and the "unicorn" enterprise with a valuation of more than $1 billion be returned to increase the vitality of the Chinese capital market and allow Chinese users to enjoy the capital dividend brought by the new economic growth, It has always been a matter of great concern to entrepreneurs, investors and regulators.

The industry generally believes that the CDR New Deal has not only cleared some obstacles for the development of the new economy, but also provided experience for financial supervision. Some specific issues require the CSRC to further develop rules, and opportunities and challenges coexist.

Innovative companies can be listed without profit, and CDR and IPO can be selected.

The content of the "Notice" that is most likely to attract the attention of entrepreneurs is that the issue of profitability indicators of innovative enterprises that are most concerned by the market is clear for the first time: qualified enterprises that meet the conditions no longer apply the conditions for the issuance of profits and the absence of unrecovered losses.

However, not all innovative companies apply this new regulation. The "Notice" proposes that pilot enterprises should be in line with national strategies, master core technologies, and have high market acceptance. They belong to high-tech industries such as the Internet, big data, cloud computing, artificial intelligence, software and integrated circuits, high-end equipment manufacturing, and biomedicine. Strategic emerging industries, and reach a large scale of innovative enterprises.

Among them, large-scale red-chip companies that have been listed overseas have a market capitalization of not less than 200 billion yuan; innovative enterprises that have not yet been listed overseas (including red-chip companies and domestic registered enterprises) have an operating income of not less than RMB 3 billion in the most recent year. And the valuation is not less than 20 billion yuan, or the business income is growing rapidly, with independent research and development, international leading technology, and the comparative advantage in the same industry.

In response to the issuance and listing of these two types of enterprises in the domestic capital market, the "Notice" has made a systematic institutional arrangement: allowing pilot red-chip companies to issue depositary receipts (DR) in the domestic capital market in accordance with procedures; pilot red with conditions for stock issuance and listing The financing enterprise may apply for listing of shares in China; the pilot enterprises registered in China may apply for listing of shares in China.

The so-called Depositary Receipt (DR) refers to the transferable vouchers representing the securities of a foreign company in a country. When the investors cannot or inconveniencely buy the shares of a foreign company directly, they can buy the company locally. DR, to achieve investment in the company, which is very similar to buying and selling stocks in the secondary market. As a financial derivative of stocks, DR not only allows investors to have more investment choices, but also allows listed companies to have more capital market choices.

In addition, the "Notice" also proposes that, in principle, in accordance with the stock issuance approval procedures, the issuance review committee shall review the application for the issuance of the pilot red chip corporate depository receipts in accordance with the law; fully consider the VIE structure (protocol control) and voting rights differences of some innovative enterprises. Specific corporate governance issues and targeted arrangements. Allowing innovative companies to be non-profitable and marketable, CDR and IPO (initial public offerings) two-for-one listing dual-track system, and the new policy of leaving room for VIE structure, AB shares (different shares), unexpectedly surprised .

Wang Guangyu, founder and chairman of ChinaSoft Capital Management Group Co., Ltd., believes that from the rumors of the two conferences to the official introduction of the pilot policy, the CDR new policy is "very efficient", which indicates that the institutional reform of China's capital market is accelerating around the development of the new economy. He said that in the multi-level capital market, the most crucial link is the listed company. “The “unicorn” enterprise returns to A shares, and the vitality and value of the market can exist for a long time.”

On April 1, Wu Xiaoqiu, vice president of Renmin University of China, said in a financial forum that the return of the "unicorn" enterprise and the revision of the listing standard is a major improvement. In his view, the current listing standards follow the rules formulated more than ten years ago, heavy assets, heavy scale, heavy history, heavy profits, and sometimes “identity”, which is not conducive to the construction of Chinese stock market into RMB-denominated assets. Wealth Management Center.

"According to the original standards, some companies listed under the peak of particularly good profitability, then it will be followed by a recession after listing." Wu Xiaoqiu believes that the listing should be a youth enterprise: it has shortcomings, problems, but there are A huge future prospect; its financial indicators may not look so good, but it does represent the future.

Global "unicorn" battle

After the release of the Notice, the most interesting thing is which companies may return to A shares through CDR. This not only determines who is the first person to eat crabs, but also competes in the global "unicorn". Has a major impact.

Before and after the release of the Notice, Zhu Zhenxin, the chief researcher of the Financial Research Institute, led the team to sort out the relevant company's information. They found that there are not many companies that meet the CDR New Deal requirements. "The SFC is really cautious about this."

According to the research of Zhu Zhenxin's team, there are only 7 overseas listed innovation companies with a market capitalization of not less than 200 billion yuan, namely Hong Kong-listed Tencent Holdings (31109 billion yuan), US-listed Alibaba (292.1 billion yuan), China. Mobile (1.1778 billion yuan), Baidu (487.44 billion yuan), Jingdong (362.30 billion yuan), Netease (230.9 billion yuan), China Telecom (223.9 billion yuan).

Zhu Zhenxin believes that encouraging the development of innovative enterprises and policy orientation is very clear; and guiding red-chip companies to return to A-shares is a powerful measure to promote capital market innovation and has far-reaching reform significance.

In fact, such reforms are also a common trend in global capital markets. For the innovative "unicorn" companies such as red-chip companies, the global capital market is vying for. According to media reports, Spotify, the world's largest music streaming company, will land on the New York Stock Exchange on April 3 with a non-traditional IPO directly listed. In March 2017, the NYSE proposed to revise the listing process and intend to allow the company to go public. The US Securities and Exchange Commission approved the proposal in early February.

Since the sale of stocks has diminished the original shareholders' equity and saved a large amount of money than the traditional IPO method of relying on investment banks for underwriting, the direct listing of IPOs has been widely welcomed by new economic enterprises. Industry insiders predict that Spotify's successful experience in the United States will drive Airbnb, Uber and other super "unicorns" to go public in a similar way.

In order to attract "unicorns", capital markets in other Asian countries and regions have also taken the initiative to change the listing rules.

In December 2017, the Hong Kong Stock Exchange decided to broaden the listing system in Hong Kong to facilitate the listing of emerging industries and innovative companies. Biotech companies that have not yet earned income, and the obstacles to the listing of new economic companies that adopt "different voting rights frameworks" will gradually clear up. Companies that have already listed on major international markets will go to Hong Kong for secondary listing. “In short, the reformed motherboard will be able to gather more types of listed companies, especially high-growth and innovative companies.” At that time, Li Xiaojia, chief executive of the Hong Kong Stock Exchange, said that he expects more and more in the second half of 2018. The innovative companies listed in Hong Kong; and repositioned the GEM, hope that the GEM can continue to attract more quality small and medium-sized companies.

In addition, the chief executive of the Singapore Stock Exchange, Luo Wen, also revealed at the January performance announcement that companies with a two-tier voting structure were allowed to list in Singapore. On March 9, Zhou Shida, executive vice president of the SGX, further stated that it is expected to launch a “double-equity” structure of the company listing rules consultation document within two weeks. In July this year, the first company with the same rights and shares will be ushered in.

In this regard, the wealth researcher Yang Xiaoqing said that the capital market competes for high-tech "unicorn" enterprises, not only because "unicorns" can inject fresh blood into the stock market, or bring benefits to investors, but also because of "independence The horned beasts represent the new economy, new needs, and new opportunities. Their development can bring huge social effects and far-reaching effects.

"The new domestic initiatives are incentives for entrepreneurs and venture capital institutions. The 'unicorn' corporate financing will be relatively easy." Yang Xiaoqing analyzed that for the "unicorn", the question to be considered in the future is to choose Stay in the country or go public overseas.

Mo Cheng "Poisonous Beast"

The competition for "unicorn" companies is a global competition, and the resulting discussion is getting deeper and deeper.

For example, Guan Qingyou, dean of the Financial Research Institute and chief economist, called for the "unicorn" to become a "poisonous beast." He believes that many "unicorns" have passed the rapid growth period, and the overseas stock market is rising. These "unicorns" have high stock prices. It is unlikely that investors will share the "unicorn" growth dividend. The return of "unicorn" or rapid IPO, lack of consideration of market impact, may impact domestic capital markets.

There are not a few such risk reminders. On March 25th, at the 2018 China (Shenzhen) IT Leaders Summit, Li Xiaojia reminded him in his speech that it is most important to understand what is most important. "If you let the 'unicorns' return to the A shares, the most important thing is to be prepared to change the rules, including preparation for sacrifice." He suggested that if the logic of the A-share market has not yet changed, the "unicorn" can only be a small pilot.

Wang Guangyu also noted that capital markets in various countries and regions are competing for "unicorn" listed companies, and the most direct listing of the New York Stock Exchange's direct listing policy has caused great controversy in the traditional investment banking field. He believes that such practices and corresponding disputes have certain reference significance for the Chinese capital market to attract the return of "unicorns".

Wu Changhai, deputy dean of the Institute of Capital and Finance of China University of Political Science and Law, believes that while welcoming the "unicorn" to return to A shares, it should be wary of "unicorn" enterprises under the fermentation of "technology + capital", which will stimulate bubbles and intensify the stock market. Instability.

Wu Changhai analyzes that in the stock market, the biggest problem of such enterprises is that the stock price is unstable and there is a bubble phenomenon. If you return to the immature A-share market, once there is investor speculation, it is easy to cause a secondary bubble; The cusp of the market has always changed. Once there is a problem with the development direction of such enterprises, or improper operation, it may cause huge losses for investors.

In fact, such concerns are closely related to the market performance of some “unicorn” companies. Previously, two Chinese video companies listed in the United States, Yi and Iqiyi, had “broken” on the first day of listing. The performance of the insurance industry "unicorn" Zhongan Online, which is listed on the Hong Kong stock market, is also unsatisfactory. Its first annual report after listing shows that the total premium income in 2017 was 5.954 billion yuan, up 74.7% year-on-year. 0.77 yuan.

As an academic researcher, Wu Changhai is also worried that some "unicorn" companies listed overseas have already gained higher share price recognition, while the domestic stock market is currently in a downturn, if several such "unicorns" appear at the same time. The return of enterprises may crowd out the development space of some non-"unicorn" high-tech companies in China's capital market. Cheng Xiaoming, dean of Qishang New Third Board College, believes that due to the scarcity of domestic A-share stocks, the A-share stock price is at a high level in the world. Although this has many drawbacks, it objectively supports the super-normal development of Chinese listed companies. At this time, the introduction of CDRs may make it possible for stock investors of such red-chip companies listed overseas to obtain market arbitrage.

He believes that the more important reform method is to let the "unicorn" enterprises that have not yet listed in the market go public, or to promote the "unicorn" enterprises listed overseas to return to the "second listing". As a result, such companies are regulated by Chinese laws and exchanges, as well as by Chinese investors.

How to avoid excessive hype

As topics such as the "unicorn" enterprise and the CDR New Deal attract attention, a common question that both the industry and the regulatory authorities are concerned about is how to avoid related concept companies and stocks being speculated.

Yang Yongmin, founding partner of Liangma Investment, said that companies that meet the requirements to issue CDRs may have stronger ability to raise funds in the domestic capital market and are more likely to be invested or even speculated. He is worried that some "unicorn" companies with strong topics will land in the domestic capital market through CDR or IPO, and there will be many "hot money" swarming to turn these "unicorn" enterprises into " A-share pump."

“There are some companies that are good and the pricing is relatively reasonable, but so far, the 'unicorn' is generally high in price.” Yang Yongmin believes that such high-value companies are on the “window” if they land in the domestic capital market. It is easy to be hyped. Once the "window" has passed, the stock price is also prone to plunge, leading to small and medium-sized investors being stuck.

How to avoid excessive hype "unicorn" and protect investor rights? The CSRC stated in the Notice that it will control the number of pilot entrepreneurs and the amount of funds raised, and rationally grasp the pace of the pilot; strengthen information disclosure, market supervision and investor education, and urge the market participants to fulfill their duties and blame.

The person in charge of the relevant departments of the CSRC also stated that in the case that the legitimate rights and interests of investors are violated by illegal acts, the pilot enterprises should ensure that domestic investors receive compensation comparable to those of foreign investors; before the pilot enterprises achieve profitability, their controlling shareholders and actual The controller, directors and senior management personnel shall not reduce the shares held before the listing; if the CDRs are issued, it shall ensure that the holders of the depositary receipts actually enjoy the same rights as the holders of the overseas basic stocks.

Cheng Xiaoming suggested that investors should also be warned that the stocks of US listed companies are purchased through CDRs, regulated by US laws and trading institutions, and are not subject to the supervision of Chinese laws, the China Securities Regulatory Commission and exchanges, and their information disclosure and accounting standards. Follow the rules of the United States. Based on this, he believes that it is also necessary to set a certain threshold for individual investors participating in the CDR to prevent excessive speculation.

For the discussion of the "unicorn" return and the CDR New Deal in the past week, Yang Yongmin noticed a good phenomenon: when the news came out, the industry was applauded, but then began to have more in-depth discussions and proposed different suggestions for the policy. . He believes that this will force China's capital market to be more standardized, and investors can see more of the true value of some "unicorn" companies.

Wang Guangyu believes that an important way to prevent excessive speculation is to attract the "unicorn" enterprises listed overseas, and to cultivate and develop more new "unicorn" enterprises. “Only if an investment institution invests and helps, it will allow a company to enter the stage of listing from the angel stage.”

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