Luo Fei, Director and President, Green Pine. Photo by Andrew van Buren
CHINA, WHOSE ECONOMY is more reliant on SMEs than neighboring economic powers Japan and South Korea, is planning to launch its equivalent of the Nasdaq this October -- the Growth Enterprise Market board, or GEM board for short.
But is now the right time for a secondary board for up-and-coming, innovative SMEs given lingering global economic uncertainty? And what part will regulators play in its launch and operations?
NextInsight recently tracked down three influential opinion shapers in Shenzhen – host of the GEM board – from three fields, namely: a venture capital firm, a law firm and an IPO sponsor.
Today we feature the view from Green Pine Capital Partners, a thriving venture capital and asset management firm.
Green Pine Capital Partners
Green Pine Capital Partners (GPCP) is entrusted to act as manager for venture capital funds and provide capital investment and project management services for its customers.
To date, total assets managed by Green Pine’s are over 1.7 bln yuan, with over 50 portfolio companies under GPCP management, and new investments in 2007 exceeding 300 mln yuan.
Among the portfolio firms are 10 that have successfully listed on the Shenzhen Stock Exchange. One example is Rongxin Power Electronic Co Ltd (Shenzhen Stock Exchange Main Board: 002123) (http://cn.rxpe.com), China’s largest power equipment and system player.
Currently the stock is trading at more than 40x FY2008’s earnings, with the company having a cutting edge position in energy conservation. And Green Pine considers the listing criteria for the Shenzhen GEM board to be right up its alley in terms of capitalization.
“Our company launched on 31 December 1999, and the type of client we seek has net assets of over 10 mln yuan,” said Green Pine Director and President, Mr. Luo Fei.
Mr. Luo, who said Green Pine’s managed capital may surpass three bln yuan by the end of this year and five bln next year, is “looking very closely” at opportunities on the GEM.
“Guanxi (interpersonal relationships) are very important for venture capital and asset management firms, especially here in China. We excel at this,” he said.
He said listing requirements for the GEM will be “easier” than applying to sell shares on China’s A-share markets. When asked how the twin meltdowns on Wall Street and then Main Street have impacted Chinese securities regulators, Mr. Luo said that information sharing and openness were key.
“Looking at the rules and practices for the GEM, Chinese regulators are on it, and insisting on more and more transparency. Chinese regulators are perhaps the strictest in the world now. Over the past few years, the regulatory environment has been getting tougher.”
Shenzhen Stock Exchange, future home of the GEM Board. Photo: Internet
Once listed on the GEM, firms must meet disclosure requirements, bolster corporate governance and ensure continuous regulatory compliance.
Mr. Luo added that among companies seen as possible GEM board listing candidates, Green Pine was especially interested in alternative & renewable energy, new materials firms, wireless services and biotech-medical companies.
“Ten of our existing major investments are good candidates to list on the GEM in the next two years.”
Green Pine has first-hand experience in building successful startups, as evidenced through their solid management skills, in-depth knowledge of investment and technology issues, and financing experiences in China.
Having done venture capital business in China for over 10 years, the members of GPCP have the resources to provide entrepreneurs with professional advice on company strategy, technology directions, business development, financial and legal issues.
On the whole, based on the current criteria, a large pool of firms – some 200 strong -- is expected to be eligible for GEM listing come October. The idea of establishing a second board was first proposed in the early 1990s.
In 2004, a mini second board for SMEs was set up at the Shenzhen bourse as a litmus test for both market receptivity and regulatory compliance for would be GEM listcos.
It will be the third share bourse in China behind the larger Shanghai and Shenzhen stock markets.
"The growth enterprise board will play an important role in stimulating private investment, advancing industry upgrading, and promoting employment. It will also allow the capital market play its fundamental role in allocating market resources in a better way," the CSRC said on its website.
Mr. Luo Fei serves as Chairman, Managing Director, and General Manager of Shenzhen Green Pine Capital Partners (GPCP). He is also the General Manager of IER Venture Capital, the standing director of the Technology Enterprise Association of China, the Deputy General Secretary of the Venture Capital Association of Shenzhen, and the Vice President of the Managing Consulting Association of Shenzhen.
He also serves as the Deputy General Manager of Shenzhen AnXin Financial Consulting Co, where he oversees the development of the first securities database in China, and organized the first online IPO in China.
Shenzhen’s GEM board: Diamond in the rough?
Despite all the entrenched bullishness in most bourses, many investors ignored at their peril recent ostensible bargains among Chinese A-shares.
This is even more glaringly so considering that the Shanghai Composite Index outperformed all markets in the first quarter, booking its best January-March start since the pre-tech bubble burst days of 2000.
And over the past three months the benchmark index has shown few signs of fatigue, rising from nearly 2,000 in early March to around 2,800 today.
But shareholders who bought into the recent mini-bull run as well as those who are perhaps kicking themselves after waiting too long for the dust to settle are both wary of the economic fundamentals – both at home and especially overseas – that are hardly cause for much cheer in their role as continued upside valuation drivers.
Perhaps this is even more so considering the little understood role of China’s 4.5 trln yuan economic stimulus package, how much of the money is being officially earmarked for listed companies’ development, and how much is unofficially trickling into stock speculation.
Therefore, both existing and sideline investors are no doubt looking to the soon-to-be launched Growth Enterprise Market Board of the Shenzhen Stock Exchange as a better way to pick winners among small and medium-sized firms (SMEs) for their intrinsic value uber alles.
The GEM will undoubtedly lend a hand to SMEs for capital raising and expansion. The new board, over a decade on the drawing table, will list firms in operation for at least three years with net assets of at least 20 mln yuan. Profits during two consecutive years must be at least 10 mln yuan.
Thousands of private sector SMEs are looking to the GEM (patterned after the tech-heavy Nasdaq secondary market) for which last month were officially issued the Provisional Measures on Administration of Initial Public Offering and Listing -- provisional measures serving as key criteria for businesses seeking a listing on the exchange, which is scheduled for launch on October 1.
