Securities Offering and Listing (2)

1. Listings v Offerings
2. Listing criteria
3. Offering and Listing Review Process
4. Sponsors
5. Comments on Registration Reform
6. IPO pricing reform

1
1
1. Listing v Offering
◼ Public offering & Listing
❑ Distinct processes involving different things
◼ Public offering but not listing, and vice versa
◼ Public offering
❑ Function:
◼ A means of raising funds
◼ Joint stock companies vs limited liability companies
❑ Governing law:
◼ Normally company law
◼ BUT China: Securities Law
❑ Legal documents:
◼ Prospectus
❑ Regulator
◼ CSRC: examination and approval

2
2
Listing v Offering (cont)
◼ Stock exchange listing
❑ Function: Provide a secondary market
❑ Governing law:
◼ Normally listing Rules
◼ BUT China: Securities Law, CSRC regulations, Listing Rules
❑ Legal document:
◼ Listing document（上市报告书）
❑ Regulator
◼ Traditionally stock exchanges
❑ Hong Kong
❑ BUT China: the relationship between stock exchanges and CSRC
◼ BUT: UK (listing powers transferred to FSA); Australia

3
3
IPO & Listing
◼ Two in one
❑ For many IPOs, public offerings and listings are synonymous
◼ Similar terms: ‘flotation’; ‘going public’
◼ Particularly in China

4
4
Why Listing?
❑ Company—public Cos—listed companies: why?

5
 Why listing? Cost-benefit analysis
（1） reputation：in
future tranlate into
more money:你能listed

◼ benefits: 需要了解逻辑为什么会帮助fund raising

说明你达到了list的条件
（2）make employees
richer （3）对赌

❑ ? further oppotunities
fund raising

go to stock chain, to get access to go into this big pool

◼ costs
❑ ?
the risk of ipo: (1) you as the controller of the company, on the risk of lossing the control of the company (2) compliance cost: issuing cost or any other things, related to the privacy

(3) constrain from the market,可能不能按照⾃⼰的计划运营公司

6
Where to list?

◼ Hong Kong
◼ Shanghai
◼ Singapore
◼ London – Main
Board / Aim
◼ New York - NYSE /
NasDaq

7
8
9
2. Listing criteria
◼ Statutory listing criteria
❑ Previously: S 50 of Securities Law 2014
◼ 1. Issuance standard : Shares are already publicly issued with the
CSRC’s approval
◼ 2. Depth of the market: Share capital is no less than 30m yuan
◼ 3. Spreading requirement: Publicly issued shares account for more
than 25% of all shares
❑ For Cos with share capital of more than 0.4b yuan, the percentage shall
be more than 10%
◼ 4. Character test: Co has no record of serious misconduct or false
financial statements in the latest 3 years

❑ Now: deleted and left to listing rules of stock exchanges

10
10
A list of Listing rules
◼ Shanghai Stock Exchange Share Listing Rules (08/2023)
❑ 上海证券交易所股票上市规则
❑ Main Board
◼ Shanghai Stock Exchange Share Listing Rule for STAR Market
(08/2023)
❑ 上海证券交易所科创板股票上市规则
❑ STAR Market
◼ Shenzhen Stock Exchange Share Listing Rules (08/2023)
❑ 深圳证券交易所股票上市规则
❑ Main Board
◼ Shenzhen Stock Exchange Share Listing Rules for GEM
(08/2023)
❑ 深圳证券交易所创业板股票上市规则
❑ GEM (ChiNext)
◼ Beijing Stock Exchange Share Listing Rules (08/2023)
❑ 《北京证券交易所股票上市规则（试行）》

11
The positioning of different markets

12
Shanghai Stock Exchange Listing Rules

◼ Revised August/2023: apply to Main Board

◼ 3.1.1 A domestic issuer that applies for an IPO of stock and
listing on the Exchange shall meet the following
requirements:
❑ (1) compliance with the share offering requirements specified
by the Securities Law and the CSRC;
❑ (2) the total share capital after the offering shall not be less than
50 million yuan;
❑ (3) the quantity of public offered stocks accounts for more than
25% of its total stocks. For an issuer whose total share capital
exceeds 400 million yuan, such percentage is 10%;
❑ (4) the market capitalization and financial indicators meet the
standards specified in these Rules;
❑ (5) other requirements as may be imposed by the Exchange.

13
◼ 3.1.2 A domestic issuer that applies for listing on
the Exchange shall meet at least one of the
following market capitalization and financial
indicator requirements:
❑ (1) Net profit (1y+3y) + cash flow (3y)/revenue (3y):
◼ the net profit for each of the most recent three years is
positive, the cumulative net profit for the most recent three
years is not less than 150 million yuan, the net profit for the
most recent year is not less than 60 million yuan, AND
◼ the cumulative net cash flow from operating activities for the
most recent three years is not less than 100 million yuan,
OR the cumulative revenue for the most recent three years is
not less than 1 billion yuan;

14
❑ (2) Capitalization + net profit (1y) + cash flow (1y) +
revenue (1y):
◼ the estimated market capitalization is not less than 5 billion
yuan,
◼ the net profit for the most recent year is positive,
◼ the revenue for the most recent year is not less than 600 million
yuan, and
◼ the cumulative net cash flow from operating activities for the
most recent three years is not less than 150 million yuan;
❑ (3) Capitalization + net profit (1y) + revenue (1y):
◼ the estimated market capitalization is not less than 8 billion
yuan,
◼ the net profit for the most recent year is positive, and
◼ the revenue for the most recent year is not less than 800
million yuan.

❑ “estimated market capitalization（市值）”:

◼ the total nominal value obtained through multiplying the total
share capital (股本总额；1 yuan par value) by the offering
price after a public offering of stock.

15
Comments

◼ Main board: significantly higher than before

16
❑ Listing standards for Main Board BEFORE 2023
Reform
① Over the last 3 accounting years, the issuer makes profits
each year, and the total profit exceeds 30m yuan
② Having a net cash flow of over 50 million yuan accumulatively,
or having a business income of over 0.3 billion yuan
accumulatively for the latest 3 accounting years;
③ Having a total amount of stock capital of not less than 30
million yuan before issuance;
④ At the end of the past accounting year, intangible assets
account for no more than 20% of net assets of the issuer
⑤ Having no uncovered deficit in the latest period

◼ in 2018, revised to add the following exception

❑ 1) and 5) do not apply to innovation companies that issue shares
or depositary receipts

17
17
Red-chip enterprises (红筹企业)

18
Listing of Red-chip enterprise

◼ 3.1.3 A red-chip enterprise may apply for an

offering of stock or depositary receipts and
listing on the Exchange.
❑ Need to comply with the Notice by the General Office
of the State Council of Forwarding the Several
Opinions of the China Securities Regulatory
Commission on Launching the Pilot Program of
Innovative Enterprises' Domestic Offering of Stocks or
Depository Receipts (No. 21 [2018], General Office of
the State Council) and other relevant provisions
❑ Listing requirements
◼ Structurally, similar to those for domestic companies;
◼ market capitalization and financial indicators are different

19
◼ 3.1.4 A red-chip enterprise that is already listed
overseas shall meet at least one of the
following standards:
❑ (1) Capitalization:
◼ it has a market capitalization of not less than 200 billion yuan;
OR
❑ (2) Capitalization + advanced technology
◼ it has a market capitalization of more than 20 billion yuan,
◼ possesses independently researched and developed,
internationally advanced technology and strong scientific
and technological innovation capabilities, and holds a
relatively competitive position in the industry where it
operates.

20
◼ 3.1.5 A red-chip enterprise that is not yet listed
overseas shall meet at least one of the following
standards:
❑ (1) it has an estimated market capitalization of not less
than 20 billion yuan, and its revenue for the most recent
year is not less than 3 billion yuan;
❑ (2) it has a rapidly growing revenue, possesses
independently researched and developed, internationally
advanced technology, holds a relatively competitive
position in the industry where it operates, and has an
estimated market capitalization of not less than 10 billion
yuan;
◼ The meaning of “rapidly growing”: next slide
❑ (3) it has a rapidly growing revenue, possesses
independently researched and developed, internationally
advanced technology, holds a relatively competitive
position in the industry where it operates, and has an
estimated market capitalization of not less than 5 billion
yuan, and its revenue for the most recent year is not less
than 500 million yuan.

21
◼ "rapidly growing revenue" shall meet one of the following
standards:
❑ (1) if the revenue for the most recent year is not less than 500
million yuan, the compound growth rate of revenue for the most
recent three years shall be more than 10%;
❑ (2) if the revenue for the most recent year is less than 500 million
yuan, the compound growth rate of revenue for the most recent
three years shall be more than 20%;
❑ (3) if the industry as a whole is in a downward cycle under the
influence of cyclical fluctuations in the industry and other factors,
the compound growth rate of the issuer's revenue for the most
recent three years is higher than the average growth rate of
comparable companies in the industry for the same period.
◼ Note:
❑ The "rapidly growing revenue" requirement above shall not
apply to red-chip enterprises in the research and development
stage or of significant importance to the national innovation-
driven development strategy.

22
Companies with WVR

◼ 3.1.6 An issuer with weighted voting rights (WVR)

arrangements shall meet at a minimum one of the
following market capitalization and financial indicator
requirements:
❑ (1) the estimated market capitalization is not less than 20
billion yuan, and the net profit for the most recent year is
positive;
❑ (2) the estimated market capitalization is not less than 10
billion yuan, the net profit for the most recent year is
positive, and the revenue for the most recent year is not
less than 1 billion yuan;

23
SHSE Listing Rules for STAR Market

◼ Revised in Aug/2023: apply to STAR market

◼ S2.1.1 listing criteria (exactly the same as ChiNext)

❑ meet the share issuance standards of CSRC;
❑ Depth of the market:
◼ The share capital（股本总额）is no less than RMB 30m
❑ Spreading requirement: the same as Main Board
◼ 25% shares offered to the public, or 10% if the total share capital
exceeds 400 million yuan
❑ meet the tests of market capitalization (市值) and finance
❑ catch-all provision
◼ Other requirements as prescribed by the exchange

24
◼ If a red chip enterprise issues shares,
❑ subparagraph (2) of the preceding paragraph is
adjusted as that the total number of shares after
issuance shall not be less than 30 million, and
❑ subparagraph (3) of the preceding paragraph is
adjusted as that the number of publicly offered shares
shall reach 25% or more of the total number of shares
of the company; if the total number of shares of the
company exceeds 400 million, the number of publicly
offered shares shall reach 10% or more of the total
number of shares.
◼ If a red chip enterprise issues a depositary
receipt,
❑ Similar adjustments…

25
◼ 2.1.2 Cap/Financial Tests (any one of them)
1. estimated capitalization is more than 1 billion,
① making profits the latest two consecutive years and the
accumulated profit is not less than 50m, OR
② making profit in the last year and revenue is not less than 1b;
2. estimated capitalization is more than 1.5b,
① revenue is not less than 200m, and
② the accumulated R&D spending represents at least 15% of revenue
in the past three years;
3. estimated capitalization is more than 2b,
① Revenue is not less than 300m, and
② the accumulated cash flow is not less than 100m in the past 3
years;
4. estimated capitalization is more than 3b,
① business income is not less than 300m in the latest year;
5. estimated capitalization is more than 4b
① business requires government approval with big potential market
and initial success
② Has significant technological advantage

26
◼ Note: Different Cap/Financial tests for
❑ Red-chip enterprises: S2.1.3
❑ Companies with weighted voting rights (WVR):
S2.1.4
◼ Structurally, similar to the Main Board Listing
Rules

27
◼

28
Shenzhen Stock Exchange

◼ Main Board
❑ Similar to Shanghai Stock Exchange Listing Rules

◼ GEM
❑ Different from STAR Market

29
Shenzhen Stock Exchange GEM LR（创业板）

◼ S 2.1.1: Listing Requirements

❑ meet the issuance standards of CSRC;
❑ Depth of the market:
◼ The share capital（股本总额）is no less than RMB 30m
❑ Spreading requirement: the same
❑ meet the tests of market capitalization (市值) and finance
❑ catch-all provision
◼ Other requirements as prescribed by the exchange

◼ Note:
❑ Total share capital (股本总额)= share face value x number of
shares
◼ Sometimes also called “capital stock” or “capitalization”
❑ Market Capitalization (市值)= share market price x number of
shares
◼ Also called “market value”

30
Listing Rules of ChiNext
◼ 2.1.2 Financial/Capitalization Tests (any one of the 3)
❑ Profit test:
◼ It has been gaining profits for the latest two consecutive years, and
the accumulative net profits gained in the latest two years are 50 million
yuan or more and have been growing continuously;
❑ Profit/Income/capitalization test:
◼ it made profits in the latest year;
◼ its business income in the latest year is 100 million yuan or more;
and
◼ Estimated capitalization is 1 billion yuan or more
❑ Income/capitalization test
◼ its business income in the latest year is 300 million yuan or more;
and
◼ Estimated capitalization is 5 billion yuan or more

31
◼ Note: Different tests for
❑ companies with weighted voting rights (WVR)
❑ Red-chip companies

32
33
Beijing Stock Exchange

34
Overview
◼ National stock exchange
❑ Derived from New Third Board (NTB)
❑ Listed companies are selected from companies that have
been listed on NTB for more than 12 months
◼ Focus on innovative small and medium-sized
enterprises (SME)
❑ emphasizing “earlier, smaller and newer”
◼ Qualified investors: same as STAR market
❑ Institutional investors
❑ Individual investors with RMB 500,000 of financial assets
and two years of securities investment experiences
◼ Registration-based IPO

35
◼ 2.1.2 To apply for public issuance and listing, an
issuer shall meet the following conditions:
❑ (1) The issuer is an innovation-level listed company that
has been listed on the National Equities Exchange and
Quotations for 12 consecutive months;
❑ (2) Meet the issuance conditions stipulated by the China
Securities Regulatory Commission (hereinafter referred to
as the China Securities Regulatory Commission);
❑ (3) The net assets at the end of the most recent year shall
not be less than 50 million yuan;
❑ (4) The number of shares publicly issued to
unspecified qualified investors (hereinafter referred to as
public offering) shall not be less than 1 million shares, and
the number of issuance targets shall be no less than 100
people;

36
❑ (5) After the public issuance, the company’s total share
capital shall be no less than 30 million yuan;
❑ (6) After the public offering, the number of shareholders of
the company shall be no less than 200, and the
shareholding ratio of public shareholders shall not be less
than 25% of the company's total share capital; if the
company's total share capital exceeds 400 million yuan, the
shareholding ratio of public shareholders shall not be lower
than the company's share capital. 10% of the total amount;
❑ (7) Market value and financial indicators meet the
standards stipulated in these rules;
❑ (8) Other listing conditions prescribed by the Exchange.

37
◼ 2.1.3 When an issuer applies for public issuance
and listing, its market value and financial
indicators should meet at least one of the following
standards:
❑ (1) The estimated market value is not less than 200 million
yuan, the net profit in the past two years is not less than 15
million yuan, and the average weighted average return on
net assets is not less than 8%, or the net profit in the most
recent year is not less than 25 million yuan And the
weighted average return on equity is not less than 8%;
❑ (2) The estimated market value is not less than 400 million
yuan, the average operating income in the past two years
is not less than 100 million yuan, and the operating income
growth rate in the most recent year is not less than 30%,
and the net cash flow generated from operating activities in
the most recent year is positive;

38
❑ (3) The estimated market value is not less than 800 million
yuan, the operating income in the last year is not less than
200 million yuan, and the total R&D investment in the last
two years accounts for no less than 8% of the total
operating income in the last two years;
❑ (4) The estimated market value is not less than 1.5 billion
yuan, and the total R&D investment in the past two years is
not less than 50 million yuan.

❑ The estimated market value mentioned in the preceding

paragraph refers to the stock market value calculated
based on the issuer's public offering price.

39
40
3. Offering and Listing
Review Process
◼ In reviewing applications, stock
exchanges shall report to the
CSRC the following four
“majors” in time:
❑ Major sensitive matters
❑ Major unprecedented matters
❑ Major public sentiments (重大
舆情)
❑ Major violations of law
◼ During the exchange review
stage, the CSRC
simultaneously oversees two
‘conforms”:
❑ Conform to national industrial
policy;
❑ Conform to the positioning of the
relevant market

41
Before 2023

◼ Similar to HK regime
❑ The CSRC is involved later and in a lesser degree

42
◼ Information disclosure rules on IPO Application
❑ Announcement No. 5 [2023] of the China Securities Regulatory
Commission—Announcement on Issuing the Standards for the
Contents and Formats of Information Disclosure by Companies
Offering Securities to the Public No. 58—Application Documents
for an Initial Public Offering of Stock and Listing (中国证券监督管
理委员会公告〔2023〕5号—关于公布公开发行证券的公司信息披
露内容与格式准则第58号——首次公开发行股票并上市申请文件
的公告)
◼ Apply to IPO on the Shanghai Stock Exchange or the Shenzhen Stock
Exchange
❑ Standards for the Contents and Formats of Information
Disclosure by Companies Offering Securities to the Public No.
47―Application Documents for the Public Offering of Stocks to
Unspecific Qualified Investors and Listing on the Beijing Stock
Exchange (2023 Amendment) (公开发行证券的公司信息披露内容
与格式准则第47号——向不特定合格投资者公开发行股票并在北
京证券交易所上市申请文件(2023修改))
◼ Apply to public offerings on Beijing Stock Exchange

43
4. Sponsors
◼ Overview:
❑ Relevant law
◼ S26 of Securities Law2019
◼ Measures on the Administration of Securities Issuance and Listing
Sponsorship Business [证券发行上市保荐业务管理办法] (CSRC,
issued in 2008, last revised in 02/2023) (Measures on Sponsorship)

❑ What is a sponsor?
◼ A corporation or authorized financial institution to advise on corporate
finance matters
◼ investment banks/securities firms

❑ Overseas
◼ Originated in the Alternative Investment Market in the UK
◼ HK borrowed that

44
44
◼

45
◼ When is a sponsor needed?
1. Initial public offering and listing of stock;
2. Public offering stocks to non-specified qualified investors
and listing on the Beijing Stock Exchange (“BSE”);
3. Issuing new stock or convertible corporate bonds by a
listed company;
4. Public offering of depository receipts; and
5. Any other circumstances determined by CSRC

46
Sponsor representatives
◼ To fulfill sponsorship duties, a sponsor institution
shall designate sponsor representatives (保荐代表人)
with sound character and conduct and professional
capability for organizing and implementing
sponsorship projects to be specifically in charge of
the sponsorship work.

47
47
The dual role of a sponsor
◼ Private adviser to the applicant
❑ Underwriter
❑ Organizer for listing (offering application to CSRC)

◼ Public watchdog
❑ Monitor the applicant and report irregularities to the EX
❑ Make ‘reasonable due diligence enquires’ to ensure the
truth, accuracy, and completeness of info provided during
the listing process
◼ Sign the relevant documents and take legal responsibility for that

48
Underwriting
◼ Functions:
❑ insurance and marketing

◼ Bao Xiao（包销）
❑ Classic (stand-by) underwriting: （余额包销）
◼ Act on an agency basis but subscribe itself for any not taken up
◼ Australia; China; HK
❑ Example: Agricultural Bank of China; 桂林三金(Shenzhen)

❑ Firm-commitment underwriting: （全额包销）

◼ The whole issue is directly allotted to the underwriter on a discount
◼ US, UK

49
49
◼ Dai Xiao（代销）
❑ best effort underwriting
◼ No obligation to take up the shortfall; Selling agreement
◼ Lower underwriting risk, lower cost

❑ Application:
◼ private placement; rights issue
◼ issuance of corporate bonds

50
5. Comments on Registration Reform

◼ What is the nature of CSRC’s registration

power?
❑ Disclosure-based vs merits-review

51
The first case of CSRC veto

◼ The case of HengAn Jiaxin 恒安嘉新

❑ A Beijing-based company specializing in the provision
of Cybersecurity services
❑ The journal to CSRC
◼ 3/April/2019, sent application to STAR market;
◼ after 4 rounds of inquiries, got approval of Listing Committee
on 11/July
◼ 18/July, the application was sent to CSRC
◼ From 18-30/July, CSRC reviewed the application
◼ On 30/August, CSRC announced its decision to refuse
registration on its website

52
◼ Reasons for CSRC’s refusal to register
❑ Accounting error corrections cannot be treated as special
accounting matters
◼ Adjustment of timing for confirmation of contract income
❑ Failure to disclose accounting error corrections in the
previous years
◼ Thus,
❑ not meeting Chapter 2 of STAR Market IPO Registration
Measure (offering conditions): s11
◼ Need to have robust accounting and internal control system
❑ Q&A on STAR Market IPO and Listing Review: s16
◼ Accounting errors result in more than 20% change to year-end
net profit or net asset
◼ In this case, the change caused by the accounting error is as
high as 89.63%!

53
◼ Comments:
❑ The veto decision is based on the quality of the
company’s accounting system:
◼ is this merit-review?
❑ The company was in a dilemma:
◼ In order to satisfy the exchange, it had to change the
accounting practice, but if it changed, it shows that its
accounting system is not robust and thus may be vetoed by
the CSRC…
❑ A special case?
◼ Difficult accounting issues, rather than outright accounting
frauds…

54
The role of exchange

◼ How will the exchange do the assessment

work, as compared to the CSRC?
❑ More efficient?
❑ Smarter in selecting good companies?
❑ Fairer and cleaner?

55
◼ More efficient: Yes
❑ The exchange has abundant money
❑ Assessment center has a lot of staff
◼ Smarter in selecting good Co?: Not sure
❑ Wait and see
◼ Fairer and cleaner?: NO
❑ 03/12/2021: corruption of Mr Cao Jian, the former
deputy director of the STAR Market Listing
Assessment Centre

56
❑

57
◼ Why?
❑ “Power tends to corrupt and absolute power
corrupts absolutely” (Lord Acton)
◼ On 26 June 2019, three staff members of the
Listing Department of the HKEX were arrested by
SFC and ICAC for corruption and misconduct in
assessing two listing applications…
❑ Mr Cao did it even after 18th National Congress
of the CCP and particularly after the
establishment of the STAR Market!
◼ New bottle, Old Wine
❑ Similar assessment procedure?
❑ Same people, but working place changes from
Beijing to Shanghai?
❑ Reform the relationship between the stock
exchange and the CSRC
❑ Change the mindset

58
Special identifiers/marks

◼ U?

59
◼ More…
❑ N: New share
❑ C: 2nd-5TH trading day
❑ U: has not yet made profits
❑ W: weighted voting rights (WVR)
❑ V: Variable interest entity (VIE)
❑ D: CDR

60