OPINION
The Refinancing System ChiNext Needs
Since ChiNext, the country's growth enterprise board, was established four years ago, the number of companies listed on the board has jumped from 28 to 355. Despite the fact that a succession of rules and regulations has been released by supervisory institutions, none are designed for refinancing.
Actually, as early as March 2010, Ouyang Zehua, an official with the China Securities Regulatory Commission (CSRC), had suggested that rules concerning refinancing in the ChiNext be formulated. During a video and telephone conference on financial services for small and micro-sized enterprises held in July, Xiao Gang, CSRC Chairman, noted that a refinancing system should be put in place. In this sense, it's just a matter of time.
When the ChiNext first came into existence, companies tended to raise more money than they could really digest. Four years later, many are distressed by a very urgent demand for funds. By the end of June, only seven out of the 355 businesses had refinanced 1.98 billion yuan ($324.9 million) via the private issuance of corporate bonds. Without a doubt, the absence of a refinancing system has hindered the healthy development of the NASDAQ-style market and companies listed on it.
To build up the refinancing system, the current capital market status and the characteristics of companies in the ChiNext should be taken into account.
Hence, certain thresholds for the ChiNext-listed companies to refinance should be set up. Those that are involved in illegal operations, condemned by the Shenzhen Stock Exchange, gloss over performance, or suffer plunges in share price as soon as being listed, should be disqualified within five years, while those that cannot make full use of the money they raise should be prohibited from refinancing. If controlling stockholders reduce shares by more than 50 percent, companies should also be disqualified as punishment. Of course, to protect investor interests, refinancing in the ChiNext should be linked to cash bonuses.
ChiNext-listed companies' demand for capital is not as large as that in the main board. A system for small and immediate refinancing is more suitable. For this reason, shelf offering should be practiced in refinancing. With a shelf offering mechanism, where certain issuers are allowed to offer and sell securities to the public without a separate prospectus for each act, refinancing demands could be fully met, and over refinancing effectively avoided. Moreover, the shelf offering mechanism could be further applied to refinancing in the main board, as well as the board for small and medium-sized enterprises.
Meanwhile, a preferred shares system should be promoted. Over the past four years, holders of non-tradable shares in the ChiNext have raked in 47.2 billion yuan ($7.75 billion), dealing a heavy blow to investor confidence. The preferred shares system would not just alleviate the impact of non-tradable shares on stock prices and market confidence, but also eliminate profit transfers. Preferred shares can only be transferred five years later, after which a restricted period should be imposed.
The refinancing of public companies mainly takes place through public offerings, allotment of shares and issuance of convertible bonds or corporate bonds. Given that holders of non-tradable shares in the ChiNext frequently cash in, allotment of shares are more practical. It should be made clear that all stockholders participate in allotment. Otherwise a company would be disqualified for refinancing.
ChiNext's refinancing system will have a sweeping impact. Yet, one thing is for sure, the interests of investors should be well protected. However, it remains for supervisors to contemplate how to find a balance.
This is an edited excerpt of an article by Cao Zhongming, a financial commentator, published in Securities Times
THE MARKETS
Continued Surplus
China's international balance of payments showed a surplus in the third quarter of the year, marking the fourth straight quarter of surpluses.
In the third quarter, the surplus under the current account totaled $39.7 billion, according to data released by the State Administration of Foreign Exchange.
Specifically, the goods trade surplus reached $87.1 billion while deficits were recorded in service trade and current transfers at $42.5 billion and $1.1 billion, respectively.
Meanwhile, China also reported a surplus under the capital and financial accounts totaling roughly $57.3 billion in the third quarter. Net inflows of direct investment amounted to $40.7 billion.
Dramatic Growth
China's Internet search giant Baidu Inc. reported strong growth in the third quarter. But its mobile business still lags behind computers in terms of monetization.
In the third quarter, Baidu's revenue increased 42.3 percent year on year to 8.89 billion yuan ($1.45 billion); its operating profit increased 1.2 percent year on year to 3.34 billion yuan ($548.1 million); its income stood at 3.05 billion yuan ($500.5 million), an increase of 1.3 percent from the corresponding period in 2012.
Baidu said it expects to generate total revenues ranging from 9.22 billion yuan ($1.51 billion) to 9.48 billion yuan ($1.56 billion) in the fourth quarter, which would be a year-on-year increase of between 45.5 percent and 49.6 percent.
"Mobile search revenues in particular continued to grow at an exciting pace as more of our customers recognize the benefits of mobile marketing on the Baidu platform," said Robin Li, Chairman and Chief Executive Officer of Baidu.
NUMBERS
4.05 tln yuan
Profits from industrial enterprises above the designated size—principal business revenue of more than 20 million yuan ($3.15 million)—from January to September, a 13.5-percent increase year on year
24
The number of industrial sectors that witnessed higher profits from January to September
60.7%
Year-on-year growth rate in profits of the power and heat generation sector from January to September
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