Streamlined refinancing set to boost tech funding

The optimized refinancing measures recently unveiled by three major Chinese stock exchanges will help direct resources more precisely to quality companies and better nurture technological innovation, said experts and market mavens.

For quality companies with high market recognition and competitiveness, revision of their refinancing requests will be streamlined, especially regarding their operation, corporate governance and information disclosure.

The refinancing funds will be used in new industries, business models and emerging technologies that are in line with the companies' main operations, according to announcements made by the Shanghai, Shenzhen and Beijing exchanges late on Monday.

Innovation-driven companies trading at the main board of the Shanghai and Shenzhen bourses will access refinancing provisions similar to those set for STAR Market and ChiNext companies, which feature light assets and heavy research and development investments.

Main board companies eligible for this new measure should have physical assets accounting for no more than 20 percent of their total assets. Their average R&D investment over the past three years should form at least 15 percent of their annual revenue. Alternatively, their cumulative R&D investment over the past three years should total no less than 300 million yuan ($43.4 million), with the average R&D investment accounting for at least 5 percent of revenue.

Additionally, the new regulations allow qualified main board companies to exceed the 30 percent cap on supplementing working capital and repaying debt, with the excess being used for main business-related R&D investment.

For tech-focused companies that have gone public by using the nonprofit standards and that have not yet turned profitable, the interval period for initiating a new round of refinancing will be shortened from 18 months to six months if the companies have exhausted previous financing. The interval will remain unchanged for companies reporting continued losses for other reasons.

The new measures will help address insufficient capital supply, which is a major challenge confronting most tech companies. Short-term financing pressure can be further mitigated so that tech startups can raise more funds for their main operations, said Song Xiangqing, deputy head of the Commerce Economy Association of China.

"The size of assets used to be the major criterion for financing. The new measures have removed the barrier, precisely addressing tech companies' characteristics of high R&D investment and long development cycle. With more resources directed to R&D and transformation of research results, the Chinese capital market can further consolidate its foundation of serving tech innovation," Song said.

Zhang Peng, deputy director of the listed companies research center at the Chinese Academy of Social Sciences, said the new measures have attached greater importance to comprehensive information disclosure and full-chain supervision. Higher transparency in refinancing will also help boost investor confidence.

The new measures have strictly mandated that the refinancing should be used for main operation, indicating the regulators' purpose of helping those companies with urgent needs rather than the less competitive ones, said Tian Lihui, university chair professor of finance at Nankai University.

"The new sets of refinancing measures are aimed at building a closed-end circle with relaxed entry, strict in-process supervision and hefty post-refinancing accountability. They will help curb issues of frequent fundraising and arbitrage by occupying resources. As more less-qualified companies exit the market, companies creating real value will truly benefit," he said.

During a forum held in late January, China Securities Regulatory Commission's Chairman Wu Qing said that the refinancing mechanism should be more accessible, flexible and attractive to better serve new quality productive forces.

As of late Monday, more than 20 A-share companies had completed private placement so far this year, with the total refinancing value exceeding 134.7 billion yuan, according to market tracker Wind Info.