Tue, Mar 22, 2016 page14

• China’s SMEs seek new investors

  ‘NEW THIRD BOARD’: The little-known stock market based in Beijing has exploded, with twice as many listings as the Shanghai and Shenzen stock exchanges combined

  • AFP, SHANTOU, China
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  The Guangdong Yixiang Folk Culture Co (廣東翊翔民俗文化公司) has a license to print money — thousands of lookalike US dollars roll off its clattering presses every minute, intended as burnt offerings for the heavenly bank accounts of Chinese ancestors.

  However, in the earthly realm, small and medium-sized enterprises (SME) like this have a devil of a time getting a loan from China’s big state-owned banks, which prefer to lend to large, often state-owned, firms.

  Business is booming, says general manager Xu Shaohong, and the company is ready to expand its products from “Bank of Hell” currency to paraphernalia for events earlier in the cycle of life, such as weddings and births.

  Like thousands of other capital-starved enterprises in the upside-down world of Chinese corporate finance, it has applied to list on the National Equities Exchange and Quotations (NEEQ), a little-known stock market based in Beijing.

  The NEEQ, also known as the “New Third Board,” has exploded, growing from 356 companies at the end of 2013 to more than 6,000 today — with nearly 1,000 joining since Jan. 1.

  It already has twice as many listings as the Shanghai and Shenzhen stock exchanges combined and is expected to add as many as 5,000 more by the end of the year.

  “It’s the next NASDAQ,” Xu said, referring to the US exchange favored by technology startups.

  As the world’s second-largest economy falters, Beijing is counting on small, private companies to help move it away from dependency on heavy industry and plodding state-owned enterprises.

  Guangdong Yixiang is a prime example. Its offices in the southern city of Shantou are bright and modern. It has almost 80 employees and mostly exports to Hong Kong and diaspora Chinese communities across Asia.

  Documents submitted to the NEEQ as part of its listing application show three years of healthy profits — more than 2 million yuan (US$300,000) last year. With reliable income from one of life’s two certainties, it would seem to be an attractive borrower.

  For years, China has promised to make it easier for such companies to access capital, but not until the NEEQ market came, it was very difficult for small and medium enterprises to obtain financial support.

  There were 2,565 companies on the NEEQ last year, generating US$18.7 billion, according to data from the exchange, with another US$4.07 billion raised in the first two months of this year.

  Unlike most major global stock exchanges, joining the NEEQ does not of itself provide corporate funding, as new listings do not necessarily sell shares in an initial public offering.

  When Chinese and Asian soccer champions Guangzhou Evergrande Taobao (廣州恆大淘寶) — one of the most high-profile companies quoted on the NEEQ — listed last year, it simply declared its shares to be worth 40 yuan apiece. It was not until January that it sold new investors a little more than 5 percent of itself, raising 869 million yuan — giving it a market capitalization close to that of Manchester United.

  More than half the listed companies have never recorded a single share sale on the board, data on the NEEQ Web site shows.

  Being on the New Third Board is better than not being on it at all, said Yang Peng, a consultant for Guangdong Yixiang.

  If nothing else, “it will definitely make it much easier to get a bank loan,” Yang said.

  Loose listing requirements are another large part of the NEEQ’s appeal, a contrast to the heavily regulated flotation process in Shanghai and Shenzhen.
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