Banks eye boon in underwriting for tech startups

Chinese investment banks are seeking new opportunities in their underwriting business for companies' initial public offerings as the regulator is expected to loosen IPO rules to allow more technology startups to raise funds in the stock market.

Several securities firms have said that they have been actively storing new projects in their IPO pipeline and they have made technology-related IPO underwriting a main business focus.

"We have been closely following the policy change and the new market trend," said Guangfa Securities Co Ltd in a written response to China Daily.

"Companies from new and emerging sectors will be the key clients that we are seeking to obtain. We will focus on good quality companies with strong technological advantage and strong profitability potential," it added.

The China Securities Regulatory Commission and the country's stock exchanges lately have increasingly voiced support for fundraising plans by companies with new technology or new business models via IPOs in the public equity market.

The Shenzhen Stock Exchange said in its development plan for 2018-20 that it will reform the startup board and will loosen the profitability requirements for initial public offerings and consider new share structures for high-tech and innovative companies.

Shenwan Hongyuan Securities Co Ltd said that it is engaging companies from sectors including the pharmaceutical, medical, technology, telecommunication, advanced manufacturing and environmental protection sectors, and it is offering them consulting services for their IPO preparations.

The rise of the "new economy" has stimulated related companies to raise funds through IPOs, which had challenged the adaptability of the existing IPO policies in the Chinese market to accommodate their fundraising needs, analysts said.

They expected the Chinese regulator to take a major step forward this year in reforming its capital market to drive the internationalization of the A-share market and help the market maintain its leading position in global markets.

"The existing system in the capital market hasn't been able to reflect the trend of the development of the new economy. There is an urgent need to reform the current rules to better support the country's ongoing economic transition," Shenwan Hongyuan Securities was quoted by China Securities Journal as saying.

The securities firm said Chinese regulators will need to clear several market hurdles including the ban on IPOs by Chinese companies registered in overseas markets and technology startups with dual-class share structures.