Money

More focus on ChiNext executives

By Li Xiang (China Daily)
Updated: 2010-10-30 10:24

SHENZHEN - China will take targeted measures to strengthen regulatory constraints on ChiNext-listed companies, the country's securities watchdog said on Friday in response to investors' concerns about the Shenzhen-based start-up board becoming a tool for the executives to "cash-out" - resigning their positions to avoid being bound by restrictions covering the sale of their shares.

"More measures are needed to strengthen the constraint mechanism of executives of ChiNext-listed companies in order to better protect the interests of retail investors," said Shang Fulin, chairman of the China Securities Regulatory Commission, at a forum in Shenzhen.

Shang said that while the overall operation of ChiNext-listed companies remained stable, many of them still needed to improve their corporate governance and to strengthen supervision of the management teams after the transition from a private company to a public one.

Saturday marks ChiNext's first year of operation, and there are increasing concerns among investors that the board is becoming a vehicle for executives and controlling shareholders to cash-out as the lock-up restrictions expire.

A total of 1.2 billion ChiNext shares valued at about 33 billion yuan ($4.9 billion) will be tradable from Nov 1, accounting for nearly 40 percent of the board's total market capitalization. Analysts said that the market is likely to face a major test from the huge unlocking pressure in the coming month.

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Under ChiNext listing rules, controlling shareholders are banned from selling stock within three years of the IPO while other pre-IPO investors face a 12-month lockup.

According to a recent report by the Shenzhen Stock Exchange, a total of 67 executives working for 33 ChiNext-listed companies have resigned.

Analysts said that high valuation is one of the factors encouraging sales among senior executives and controlling shareholders, who originally acquired the shares at very low prices. Shares of ChiNext-listed companies are currently trading at a price-earnings ratio of more than 70, nearly triple the average on the A-share market.

Chen Dongzheng, president of the Shenzhen Stock Exchange, said that the absence of a delisting mechanism in the market is one of the major factors behind the high valuations, and there is an urgent need for such a mechanism to curb excessive speculative trading on the board.

Chen said that the exchange has already submitted a plan to establish a mechanism, and is now awaiting approval from the securities regulator.

ChiNext was created to allow start-up companies to raise capital with fewer listing requirements than the main board. The board has grown from the original 28 companies to 134, which raised a total of 94.8 billion yuan.