Multilevel Capital Market And Development Opportunities for Small and Mediumsized Enterprises

1
Multi-level Capital Market And Development
Opportunities for Small and Medium-sized
Enterprises
IPO Promotion Department of Shenzhen Stock
Exchange Associate Director Zou Xiong
2

• Main Content
• I Overview of the Latest Development of Chinas
  Capital Market
• II SSE Establishes Multi-level Capital Market
  System
• III Historical opportunities for small and
  medium-sized enterprises to utilize the capital
  market

3

• I Overview of the Latest Development of Chinas
  Capital Market

4
Market Overview (June 10, 2008)
5

• China has become the biggest emerging market in
  the world (below ranking of market
  capitalization by the end of 2007)

Note Chinas total market capitalization was
4.47 trillion USD, equivalent to about 3 billion
RMB, at present the market capitalization is
about Yuan 200,000 Yuan
6

• The trading value is a reflection of the vitality
  of emerging markets (2007 ranking of stock
  exchanges in terms of trading value)

Note in 2007, the trading value of two markets
totaled 6.17 trillion USD.
7

• IPO market is developing fast

8
IPO Market Scale for 2007
Total amount raised through IPO in 2007 (unit
100 million USD)
China
U.S.
U.K.
9

• II Establish Multi-level Capital Market System
• Fundamental Missions of SSE

10
Shenzhen Stock Exchange (SSE) Establishes
Multi-level Capital Market System
NASDAQs Multi-level Market System Structure
The Multi-level Capital Market Structure of SSE
Best Selections from Around the World(1200)
Main Board Market Cultivate Blue Chips Market
Global Market (1500)
SME Market Cradle of Invisible Champion
Enterprises
NASDAQs Capital Market (600)
Second Board Market Engine of Enterprising and
Innovation
Over the Counter Bulletin Board (OTCBB) (3000)
Pilot Projects for Transfer of Stock Rights of
Non-listed Companies Incubator and Reservoir of
IPO Resources
1 Rough number of companies at various levels
of the NASDAQ Market.
11

• SSEs Main Board Marketgrow better and stronger
  by utilizing the capital market

• 467 listed companies with a total market
  capitalization of 3.07 trillion RMB (up to June
  10)

Holistic listing
Infusion of quality assets
Merger via stock swap
????
Corporate bonds
12

• SME Boardcradle of invisible champions

• On May 17, 2004, upon approval by the State
  Council and China Securities Regulatory
  Commission, SSE established the SME Board.
• SME Board is a board of SSE with independent
  operation, supervision, codes and indices but
  subject to the same laws, regulations and IPO
  criteria currently in effect.
• Its key function is to provide a direct financing
  platform for high-tech SMEs with growth potential
  and focus on main business, and is an important
  attempt to address the bottleneck problems that
  hinder the development of SMEs.

13
Basic Information of SME Board (June 10, 2008)
14

• SME Board (including high-and-new-tech
  enterprises and enterprises from traditional
  industries)

15

• Overall Performance of SME Board the compound
  annual growth rate over the past four years
  exceeds 30.

• From 2004 to 2007, the income from main
  businesses and net profit saw an compound annual
  growth rate of over 30.
• A large number of companies with good
  performance and enormous growth potential
  emerged.

16

• The SME Board displays a high capability of
  independent innovation

• Among the 219 companies listed on the SME Board,
  91 companies, which accounts for over 40 of the
  total number of listed companies, have projects
  listed in the National Torch Program, National
  Star-Fire Plan or National 863 Plan.
• 145 companies have proprietary intellectual
  property rights such as proprietary brands,
  technologies and patents, accounting for 65 of
  the total number of listed companies.
• 13 enterprises including Hualan Biological
  Engineering Inc., Hans Laser, and Xinjiang
  Goldwind Science Technology Co. Ltd. were
  designated as national-level innovation pilot
  enterprises.

Note The designation of national-level
innovation pilot enterprises is the joint
responsibility of the Ministry of Science and
Technology, State-owned Assets Supervision and
Administration Commission of the State Council
and China General Chamber of Commerce. So far
nearly 300 enterprises have been designated as
the pilot enterprises in two stages.
17

• Basic Information on the Establishment of the
  Second Board Market

• There was an express requirement in this years
  Report on the Work of the Government by Premier
  Wen Jiabao establish the Second Board Market.
• On March 21, Regulations on IPO on the Second
  Board Market was promulgated in an attempt to
  solicit public opinions.
• Other regulations such as Regulations on Share
  Issuance, Listing Rules and Trading Rules were
  promulgated in succession.

18

• What kind of second board are we going to
  establish? --One
  for Innovation and Growth!

• Provide services to enterprises at the expansion
  stage instead of those at seed stage or start-up
  stage.
• Focus on supporting enterprises with independent
  innovation capabilities instead of those from
  traditional sectors.
• New markets with international competitiveness,
  striking characteristics and controllable risks.
• Focus on innovation
• Target groupinnovative enterprises
• System designinnovation of ideas and systems
  regarding share issuance examination

19

• Solicitation of Opinions on the Second Board
  Moderately Lower the IPO Threshold

20
The Second Board supports enterprises with 2
highs and 6 news

• High growth potential
• High technology
• New economy
• New services
• New agriculture
• New energy
• New materials
• New business mode

21
Third Board Market a pilot platform for transfer
of shares of non-listed companies(OTC market)
---Incubator and Reservoir of IPO
Resources

• Pilot platform for transfer of shares of
  non-listed companies it is a service platform
  for the public transfer of shares of non-listed
  public companies and non-listed joint stock
  companies.
• Development through clear positioning, system
  improvement, resources integration and expansion,
  it will develop into a national OTC market under
  centralized supervision and administration. Zhong
  Guan Cun Science Park is the first to launch the
  pilot project.

22

• Criteria for Participating in the Pilot Projects
  for Transfer of Shares of Non-listed Companies
  and the Role of Such Pilot Enterprises.

• Criteria the enterprise has operated for at
  least three years and has been certified by
  Beijing Municipal Peoples Government as a pilot
  enterprise, besides, the enterprise has main
  businesses, records of continuous operation
  sound corporate governance structure and standard
  operation.

Standardize corporate operation Improve
corporate governance structure
Improve share liquidity
High-and-new-tech enterprises A pre-IPO
practicing ground
Shares quotation and transfer system A stock
transfer platform for companies inside the
science park Incubator of high-and-new-tech
enterprises
Build enterprise brand
Discover company value
Attract venture capital investment With ease to
withdraw
Establish a modern property rights system With
clearly-defined ownership, rights and duties
Credit overlay Makes it easier to secure bank
loans
23
Pilot projects on transfer of shares of
non-listed companies current status
24

• III Historical opportunities for small and
  medium-sized enterprises to utilize the capital
  market

??????????
25

• The constant development of the multi-level
  capital market can satisfy the financing needs of
  enterprises at different development stages.

• The further establishment of a multi-level system
  can satisfy various needs of enterprises and
  expand service areas for enterprises in the
  capital market.

Technology progress
Life cycle
26
The Second Board to be established supports
enterprises with 2 highs and 6 news

• High growth potential
• High technology
• New economy
• New services
• New agriculture
• New energy
• New materials
• New business mode

27

• Deepening and innovation of the capital market
  generates more means of financing for enterprises

• Besides IPO, various means of financing with
  different conditions are emerging, such as
  seasoned equity offering, convertible debt,
  corporate bond, warrants, private placement and
  rights offering.

Seasoned equity offering and convertible debt
weighted average ROE over the past three yearsgt6
Rights offering achieve profitability for three
consecutive years, abrogate the 6 requirement
Private placement no requirements on
profitability.
28

• A mature capital market can provide better local
  market financing services to enterprises.

• Various restrictions such as limited corporate
  scale and extent of information circulation make
  it difficult for SMEs to utilize overseas capital
  market. So the development of local market will
  provide an excellent financing platform for SMEs.

29
The state government supports creating a good
financing environment for SMEs.

• The Torch High Technology Industry Development
  Center under the Ministry of Science and
  Technology, Shenzhen Stock Exchange and China
  Development Bank have carried out the Growth
  Roadmap Program for High-tech SMEs.

• Many local governments have changed their
  conceptions they now appreciate the important
  role of enterprise restructuring and IPO in
  promoting the sustainable development of local
  economy, thus have incorporated capital market
  development into the local strategic plan and
  resolutions reached at meetings on financial
  tasks and economic tasks.
• Local governments have issued related policies
  one after another in an attempt to standardize
  and promote IPO of SMEs at various links.

30
Thank you! Telephone number 0755-25918125
xzou_at_szse.cn