The Eight Measures on Deepening Reform of the Science and Technology Innovation Board (STAR Market) to Serve Scientific and Technological Innovation and New Quality Productive Force Development (the Eight Measures), which was released in June, had been put in place for two full months by August 19. Over the past two months, the STAR Market has taken on a new look by rolling out a series of policies, measures and approving typical cases in response to the reform.
Continued Pilot in Offering and Underwriting on the STAR Market
The Eight Measures issued by China Securities Regulatory Commission (CSRC) on June 19 proposes more than 30 measures to support and improve the STAR Market. These measures focus on 8 areas, including listing of "hard-tech" companies on the STAR Market, revision of the offering and underwriting system, follow-on offerings, M&A and restructuring, index products and market ecosystem, with an aim to pursue self-reliance on science and technology at a higher level and drive the growth of new quality productive forces.
Over the past two months, a series of policies and measures have been introduced. On August 16, Shanghai Stock Exchange (SSE) issued the Implementation Rules for Offline Offering of IPO Stocks in the Shanghai Market (2024 revision), which adds a minimum shareholding requirement (average daily market value of the first 20 trading days more than RMB 6 million) if investors would like to participate in offline offering of the STAR Market.
The rule is an addition to the actions taken by the SSE to pilot the offering and underwriting system in accordance with the Eight Measures. Industry insiders believe that this move will attract new capital and encourage long-term investment in the STAR Market, so as to channel financial resources towards science and technology innovation.
On the same day as the release of the Eight Measures, the SSE clarified in its response to reporters' questions that it would adjust the elimination ratio of high pricing quotation in new IPOs on a pilot experimental basis on the STAR Market. On the evening of July 24, Shenzhen Longtu Photomask Co., Ltd. became the first issuer on the STAR Market to release its IPO pricing based on a 3% elimination ratio of the highest quotation in the offering pricing process.
Some market participants believe that removing the highest 3% quotations will, to a certain extent, discourage investors from bidding unreasonably high price in order for successful subscription, and keep the quotations within a proper range. According to statistics, the pricing of Shenzhen Longtu Photomask Co., Ltd. is overall reasonable. There is no sign of collusion among investors to artificially force down the price.
Growing Interest in M&A and Restructuring
The Eight Measures proposes to give greater support to M&A and restructuring. The reporter learned that the SSE has organized nearly 20 trainings and symposiums on the Eight Measures targeting market entities such as listed companies, securities companies, venture capital and fund managers, where M&A and restructuring policies have been a key part of introduction.
With joint efforts by regulators and the market, there has been rising interest and growing number of cases in M&A and restructuring on the STAR Market. On July 16, the deal by Rigol Technologies Co., Ltd. to issue stocks to buy 67.74% equity of Beijing Naishu Technology Co., Ltd. has registered with the CSRC, which is the first registration since the release of the Eight Measures. The underlying assets appreciated over 900% in value. The deal, since accepted by the SSE, took less than two months to complete registration with the CSRC.
Another high-profile case is the application by 3peak Incorporated for issuing convertible bonds to finance its cash acquisition of 100% shares of Shenzhen ICM-Semi Microelectronics Co., Ltd. The case has been accepted by the SSE and it is the first company on the SSE to disclose private placement of convertible bonds to purchase assets after the release of Rules for Listed Companies to Issue Convertible Bonds to Specific Investors to Purchase Assets. The first round of inquiries has concluded and the application will be reviewed by the M&A and Restructuring Review Committee on August 23.
In the past two months, a total of 14 M&A deals came out on the STAR Market, signaling a strong M&A trend powered by supporting policies. Most of these companies operate in high-tech fields such as pharmaceutical biology, semiconductor and medical device. They highlighted the synergy in technology, market and resources created by M&A and restructuring and the hope to enhance companies' core competitiveness and market value.
For example, Shanghai Sanyou Medical Co., Ltd. released a draft plan on the evening of August 14 to purchase the remaining shares of Beijing Shuimu Tianpeng Medical Technology Co., Ltd. by cash payment and stock issuance. The company believes this transaction will further cement its control over the core business sector and strengthen the synergy with Beijing Shuimu Tianpeng Medical Technology Co., Ltd. that paves the way for delivering its business strategy and profitability.
A new trend worth noting on the STAR Market is to gain international exposure through M&A and restructuring. Among the 14 deals, companies like Shanghai Microport Endovascular Medtech (Group) Co., Ltd., Halo Microelectronics Co., Ltd. have all engaged in overseas M&A.
Notable Results in Enhancing Corporate Quality and Return
Since January 2024, the STAR Market has led an action among listed companies to boost corporate quality and return (the Action). The Action focuses on a series of measures to improve companies' operation and profitability, foster new quality productive forces in a quicker pace and enhance the companies' investment value. So far, 419 STAR-listed companies have disclosed their 2024 action plans.
The Eight Measures requests the implementation of the Action, which elevates its importance from an SSE self-regulatory initiative to a policy ordered by the CSRC.
A number of companies have followed suit in the Action since the release of the Eight Measures. Statistics show that another 60 or so companies on the STAR Market have disclosed special action plans after the release of the Eight Measures, covering over 70% of market.
Following the disclosure of semi-annual reports, companies on the STAR Market have started out evaluation and revision of their action plans. According to statistics, 57 companies have completed and disclosed corresponding evaluation reports. Some of them have updated their annual action plans based on semi-annual operation and communication with investors.
For example, Autel Intelligent Technology Corp., Ltd. disclosed its updated 2024 Action Plan of Enhancing Corporate Quality and Return on August 2, which incorporates investors' suggestions on talent incentives and green development.
The Action has lifted the listed companies' sense of primary responsibility for improving corporate quality, and their awareness of valuing investor's return and putting investor at the center of its development.
One Action item is to encourage listed companies to pay interim dividends based on their own operation and performance. Under the initiative of the SSE, nearly 50 companies on the STAR Market have announced to pay interim dividends, including Shanghai BOCHU Electronic Technology Corporation Limited, ArcSoft Corporation Limited, Shanghai Allist Pharmaceuticals Co., Ltd. and other companies along such key industrial chains as high-end equipment manufacturing, artificial intelligence, innovative drugs and so on, far exceeding the number of companies doing so in previous years.
For example, Jinhong Gas Co., Ltd. disclosed Announcement on Receipt of Interim Dividend Proposal from Chairman and Actual Controller and Implementation of the Company's 2024 Action Plan of Enhancing Corporate Quality and Return, which proposes to pay cash dividends to all shareholders at a total amount no less than 40% of the 2024 semi-annual consolidated net profit attributable to common shareholders of the listed company.
New Indices available to Patient Capital
The Eight Measures proposes to enrich the STAR Market indices, improve the compilation methodology and upgrade the "Shanghai Index" system. A variety of index products play a vital role to attract long-term investment and index funds, and are fundamental to fostering patient capital. Since the release of the Eight Measures, new STAR Market indices have kept coming out to provide diversifying tools for patient capital.
On August 16, the SSE and China Securities Index Co., Ltd. jointly announced that three SSE STAR Market indices, including the SSE STAR Earnings Quality Strategy Index, the SSE STAR Brand Name Drug Index, and the SSE STAR Value 50 Strategy Custom Index will be released on August 23. This is another measure by the SSE to implement the decisions of the Eight Measures to enrich the STAR Market indexes.
With the addition of the three indices, there will be 24 STAR Market indices, marking an increase of 50% and covering a wide range of broad-based, thematic, and strategic categories. The total scale of domestic and overseas products tracking STAR Market indices is nearly RMB 160 billion.
It is worth mentioning that new launches of STAR Market indices have been non-stop after the release of the Eight Measures. The SSE STAR Medical Treatment Index and the SSE STAR Artificial Intelligence Index were released on July 25. The SSE STAR Chip Design Thematic Index and the SSE STAR Semiconductor Material & Equipment Thematic Index were released on July 26. According to the announcement of the SSE and China Securities Index Co., Ltd., the SSE STAR 200 Index will be released on August 20.
In addition, the SSE has recently formulated its Three-Year Action Plan for Index Business (2024-2026) to grow the influence and competitiveness of local indices, enhance investors acceptance of index investment, and channel new capital into the market through index products.
The above information is provided for reference purposes only and does not constitute investment advice.
