Wait for listing could be as short as 2-3 months
Chinese technology companies have been responding enthusiastically in recent days to a potential shortcut to domestic IPOs that will allow them to skip a long queue and get listed in just two to three months.
While hailing such fast-track IPO procedures as a move to use China's own capital to fuel domestic unicorns' growth, industry insiders noted that there are certain legal barriers that Chinese regulators should remove this year to push forward the plan.
The comment comes after media reports cited sources close to the matter as saying that Chinese regulators have issued guidelines to securities traders saying that if unicorns in four sectors (biotechnology, cloud computing, artificial intelligence and high-end manufacturing) seek listings, brokers should report this to the China Securities Regulatory Commission (CSRC). "Those who are in line with relevant regulations" would obtain greenlight in two to three months, news website sina.com reported over the weekend.
Unicorns refer to start-ups that have valuations of more than billion.
So far, the first batch of technology companies that are qualified to have Chinese Depository Receipts (CDRs), issued by a Chinese bank that allows foreign equity to be traded on Chinese exchanges, have been released, the sina.com report said. The list includes Baidu, Alibaba, Tencent, JD.com, Ctrip, Weibo, Netease and Hong Kong-listed Sunny Optical.
Commenting on the IPO fast-track, Yao Jinbo, CEO of NYSE-listed Chinese classifieds site 58.com, said the company hopes to be among the first batch of U.S.-listed Chinese companies to such CDRs in the A-share market.
A spokesperson from travel agency Ctrip told the Global Times on Sunday that the company will "consider all options that are presented to Ctrip."
"We think it will be a great benefit for users in China to be able to participate directly in Ctrip and the travel industry's fast growth through the right capital markets mechanism," he noted.
Robin Li Yanhong, CEO of China's top search engine Baidu, said over the weekend that the company is hoping to move to the A-share market as soon as possible if policies permit," the Securities Times reported.
"Our main users are in China, our main markets are also in China… so we always hope that Baidu could be listed in domestic bourses," he said.
Alibaba and Tencent had not responded to questions from the Global Times as of press time.
Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting, told the Global Times on Sunday that "China's detailed requirements for IPOs had been not conducive for rapidly expanding technology start-ups to go public in domestic bourses."
For example, they would need to be profitable for at least three consecutive years, Lu noted, and then wait another one or two years to see their IPOs being approved by the CSRC.
As such, "it's not realistic for high-technology companies to wait for five to six years to raise funds, and that's the reason why offshore destinations like the US and [China's] Hong Kong Special Administrative Region, with simple and shorter procedures, have become popular destinations for domestic start-ups," he explained.
Lu added that Chinese A-share boards have long been dominated by traditional industrial enterprises, and domestic venture capital investors avoided technology companies due to uncertainty over profit.
If that continues, "we would see the major stockholders of China's top technology start-ups end up being foreign investors…Is it weird?" Lu asked.
As domestic investors' appetite to share the benefits of China's new economy shot up in recent months, Lu pointed out that "it is the right time to use China' own capital to fuel homegrown unicorns' growth."
Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times on Sunday that market valuations for Chinese technology companies at home are generally higher than listing abroad.
For example, the market valuation of security company Qihoo 360 Technology was .3 billion when it delisted from the New York Stock Exchange last year. But the company's valuation took off at more than 400 billion yuan (.06 billion) when it relisted in the Shanghai exchange on Wednesday.
The IPO shortcut is also in line with China's economic transition to shift from export-driven to technology-led growth, while also contributing to the prosperity of domestic capital market, experts said.
But Li, in an interview with media, also noted certain legal obstacles.
"Baidu's variable interest entities (VIE) arrangement, based on domestic laws, makes it a foreign-funded enterprise. And that has become one of the biggest obstacles in our (listing on the) A-share market," Li noted.
Almost all internet companies listed overseas have a similar arrangement, Yang said, urging a relaxation on VIE arrangements.