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07 June 2018

Market rallies as Chinese regulators issue rules overnight to lure listings

Nine new nine CDR rules were issued overnight to lure companies to list back home, leading to shares rally.


The China Securities Regulatory Commission, the nation’s securities regulator, issued nine sets of rules on more than nine requirements late on Wednesday night on floating Chinese depository receipts (CDRs). The Shanghai and Shenzhen markets rallied by 1.4 per cent according to data provider Great Wisdom.

Luring back home
CDRs are essentially surrogate securities issued by a bank that represents equity in foreign companies, and are designed to lure home listings of Chinese companies that register overseas. Analysts believe the move will help the sector recover from current record low valuations. Shares in Citic Securities and other Chinese brokerages climbed in morning trading after regulators released new rules overnight on issuances of depository receipts by high-profile technology companies. Tech company Xiaomi to be the first target of China’s so-called unicorn funds, start-ups valued at more than US$1 billion, giving mainland investors a taste of marquee IPOs. Xiaomi, which is seeking to raise up to US$10 billion in a Hong Kong stock offer, will be the first to sell Chinese depository receipts.

Supply-side reform
In the statement published on the official website, the securities regulator said it would help China’s supply-side reform, economic restructuring and upgrading, by supporting innovative firms with core technology while in accordance with ‘national strategies’ to raise funds through CDR or securities issuance on the domestic market. It also emphasised the CSRC would ‘strictly manage the fund-raising scale’ by stringently controlling the number of eligible companies, while control the ‘timing and pace for fund raising.’ Sun Ting, an analyst at the Shanghai-based broker Haitong Securities, told South China Morning Post he is now predicting revenues from CDR issuance, custody and transactions could grow to as high as 31 billion yuan (US$4.85 billion) for the sector, adding to a 2 per cent industrywide profit increase this year, if current growth levels remain consistent.’

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