THE GROWTH Enterprise Market (GEM) board, whose launch is scheduled to coincide with the PRC’s 60th birthday on October 1, has granted approval to 13 listing candidates to date.
They are: Beijing Lanxum Software, Beijing Ultrapower Software, Lepu Medical, Chongqing Lummy Pharma, Qingdao Tgood Electric, Shanghai Bestway Marine Engineering, Nanfang Ventilator, Xinning Construction, Beijing Toread Camping Equipment, Dinghan Tech, Anke Biotech, EVE Energy and Hanwei Electronics.
And at least 10 firms scheduled to sell shares on the Shenzhen GEM board plan to enjoy valuations 50% higher than their mainboard competitors, just as worries over speculation spurred officials to tighten trading rules.
After taking the pulse of investor sentiment, these 10 start-up firms have decided on offer prices at an average 55 times 2008 earnings.
That compares with an average P/E ratio of 36 for other IPO offerings this year on Chinese bourses.
"Growth potential, rather than past performance, is what investors are looking at, so a high P/E ratio doesn't necessarily mean they're over-priced. But without doubt, it will be quite a speculative market at the beginning because it's new and the companies are very small,” said Jiang Jianrong, an analyst at Shenyin & Wanguo Securities Co.
To help manage risk, the GEM board mandates an 80% limit on share price movements during the first day of trade, the Shenzhen Stock Exchange said in an announcement.
China is hoping that the growth enterprises board could provide badly needed financing for the private sector, which has difficulty obtaining bank loans but is crucial to creating jobs and sustaining growth.
Economic regulators are also hoping that the market could become an incubator for China's own future versions of Microsoft or Intel.
The 10 firms seeking higher offer prices has begun taking subscriptions.
Among them include copy machine maker Lanxum, which is selling 5.3 mln shares, said it plans to raise 477 mln yuan, 73% more than its previous fund-raising target, after pricing its IPO at 18 yuan per share, or 51.49 times its 2008 earnings.
Another is Lepu Medical, a medical equipment maker, plans to raise 1.19 bln yuan, more than double its target, after pricing its IPO at 29 yuan a share, or 53.54 times its 2008 earnings. Lepu shares were 117.12 times over-subscribed during the road show.
Investor exuberance is likely to at first propel stocks on the start-up board to very high valuations, helping create new multi-millionaires in China.
"Some speculation is not always a bad thing. It provides easy money to private companies which had been at a disadvantage in financing compared with state-owned rivals," said Jiang added.
The Shenzhen Stock Exchange's new price limit announced yesterday will suspend shares from trade until the final three minutes of the session if they move more than 80 percent from the opening price on their first day of trade.
The long march to GEM
Jan. 1998: Market regulators decide to set up a new capital raising platform for technology firms at some future date to help better manage and spread risk.
Jan. 1999: Shenzhen Stock Exchange requests approval from China Securities & Regulatory Commission (CSRC) for future launch of GEM board.
March 1999: CSRC says considering launch of GEM in either Shenzhen or Shanghai to help fund tech SME.
April 2000: Mr. Zhou Xiaochun says CSRC will ‘soon’ establish a second board.
Oct. 2003: Central party meeting recommends setup of hedge fund and GEM board.
Jan. 2004: State Council passes motion to expedite capital market reforms.
Aug. 2007: State Council amends and clarifies rules for multi-level bourse options.March 2008: Premier Wen Jiabao promotes launch of GEM board; CSRC Chairman Shang Fulin says will expedite launch over next year; position paper on GEM IPO hopefuls issued.
March 2009: CSRC launches official listing criteria for GEM candidates.
May 2009: Shenzhen Stock Exchange publishes GEM listing regulations.
The Growth Enterprise Market (GEM) board is the new capital raising platform that experts say is sorely needed to facilitate the injection of private sector investment into innovative Chinese firms looking to be market leaders, especially in the areas of high tech and IT.
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