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As a crucial component of China’s multi-tiered capital market, the Beijing Stock Exchange (BSE), established in September 2021, is approaching its third anniversary. According to official data, 239 companies with a total market value of RMB449.64 billion (USD62.73 billion) and average price-to-earnings ratio of 24.20 were listed on the BSE by the end of 2023. These figures represent increases of about 48%, 113% and 28%, respectively, from the end of 2022.
Market statistics also indicate that by the end of June 2024, the BSE had 249 listed companies. Although this number shows limited growth of just 10 due to a slowdown in listing pace, there are still more than 100 companies under review, maintaining a high level.
Additionally, the National Equities Exchange and Quotations (NEEQ), serving as a “reserve pool” for the BSE, had more than 250 companies with median profit exceeding RMB50 million under review by the end of June 2024. This suggests a significant number of these companies ultimately aim to list on the BSE, reflecting the exchange’s robust momentum.
However, compared to the Shanghai and Shenzhen stock markets, the BSE faces challenges such as weaker liquidity, an insufficient supply of high-quality companies, and lower levels of financing and valuation.
While market participants are keenly watching and anticipating reforms and innovations, the issues faced by a nascent stock exchange like the BSE can only be addressed gradually through steady policy support and development.
Since 2024, significant changes in the domestic capital market regulatory environment have created this new landscape for companies applying for BSE IPOs. This shift presents both new opportunities and challenges, raising the bar for market participants’ conduct.
New opportunities
For some issuers, listing on the BSE has shifted from being an alternative to a preferred option. The influx of higher-quality companies will promote the BSE’s healthy development, creating a positive cycle.
A series of policies – such as the Opinions on Strictly Controlling the Entry Threshold for Issuance and Listing to Improve the Quality of Listed Companies (Trial); Opinions on Strengthening the Supervision of Listed Companies (Trial); and Opinions on Strengthening Supervision, Preventing Risks, and Promoting High-Quality Development of the Capital Market – prompted significant adjustment for IPO regulation and review in 2024.
While the BSE’s rules have remained stable, the main boards at the Shanghai and Shenzhen stock exchanges together with the ChiNext market have raised IPO rules, and the Star Market has refined its sci-tech attributes.
Due to industry cycles, some companies that initially chose an IPO on the Shanghai and Shenzhen markets have encountered significant difficulty during the listing review process due to performance fluctuations.
In such cases, a BSE IPO offers noteworthy advantages – such as consistent rules, minimal adjustments to company equity structures and governance, continuity in IPO counselling and document preparation, and higher acceptance by investors – compared to overseas IPOs or mergers and acquisitions.
Consequently, more high-quality companies are opting for the BSE. As of June 2024, about 45 companies were in the process of switching to the BSE, while more companies withdrawing from the Shanghai and Shenzhen exchanges are preparing IPO applications.
The growth and success of any stock exchange rely on the presence of high-quality companies and investors. Disclosure information shows that companies under BSE review had an average net profit of more than RMB60 million in the past year, indicating substantial profitability.
An influx of high-quality companies with promising industry prospects and substantial performance scales pursuing IPOs on the BSE will significantly enhance the quality of its potential listings and attract larger, more capable investors. This positive market dynamic will in turn support the BSE’s institutional reforms and improve its liquidity, valuation system, financing capacity, and overall market activity, addressing its current shortcomings.
New challenges
From a challenge perspective, the growing popularity of the BSE has led to increased information disclosure requirements and heightened review intensity.
On 6 February 2024, the BSE released the Action Plan to Improve the Quality of BSE Listed Companies, which mandates “optimising listing reviews and continuous supervision, consistently enhancing the quality and efficiency of these reviews, and guiding sponsor institutions to ensure the quality of listed companies, preventing problematic companies from slipping through”.
Current review practices indicate that the information disclosure requirements and review intensity for BSE IPOs are now essentially on par with those of the Shanghai and Shenzhen stock exchanges. This consistency extends to the review and inquiry stages of the NEEQ, the standards for intermediary institutions, and even on-site inspections by some provincial and municipal counselling acceptance agencies for BSE IPO counselling.
Therefore, despite being part of a multi-tiered capital market, the BSE’s disclosure and regulatory requirements are as rigorous as those of other exchanges. This places higher demands on issuers and major shareholders.
Higher standards
Given the current regulatory environment, here are some practical suggestions.
(1) Issuers and major shareholders must prioritise their market image and work honestly and transparently with regulatory agencies during the review process. They should strictly avoid violations such as illegal guarantees, concealing related transactions, and occupation of funds by shareholder, as these actions directly impact credibility. Do not use “materiality judgements” – the assessment of whether an error or omission in financial reporting is significant enough to impact the decisions of users of the financial statements – as an excuse to cross red lines.
(2) Accurately address defects by selecting experienced professional intermediaries and following their advice. Do not evade or exaggerate issues; focus on thorough rectification and stable measures.
(3) Prioritise the quality of information disclosure during the NEEQ phase. Treat the period from becoming a non-listed public company to completing the BSE IPO as a probationary period. The company’s performance during this time will significantly impact the IPO evaluation. Avoid violations and corrections in information disclosure.
Miao Ding
Senior Partner
Kangda Law Firm
Tel: +86 10 5086 7666
E-mail: [email protected]