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The week in review: China’s macro leverage drops, Peking Founder makes restructuring progress, CSRC steps up requirements for pre-IPO education

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By Addison Gong
03 May 2021

In this round-up, China’s macro leverage drops on a year-on-year basis for two consecutive quarters, Ping An Insurance Group plans to invest up to Rmb50.75bn ($7.84bn) in troubled conglomerate Peking University Founder Group, and the securities regulator has put more weight on the pre-listing education process of domestic IPO candidates.

China held a politburo meeting last Friday. The country’s macro policies will be “consistent, stable, sustainable” and have “no sharp turns”, notes from the meeting said. Prudent monetary policies will be adopted to maintain “reasonable and ample liquidity”, and to keep the renminbi exchange rate “basically stable at a proper and balanced level”. The country pledged to develop the new energy sector and continue working on reducing carbon emissions, and facilitate the recovery of the manufacturing sector as well as private investments.

Supervision of the ‘platform economy’ will be strengthened and improved to promote fair competition. In addition, local government and party leaders should be responsible for disposing financial risks, the meeting added.

Beijing has moved to define the role of local officials in managing financial risks, said a Monday morning note by Citi research. “This will likely have profound implications for China’s deleveraging and risk disposal ahead,” the note added. The bank also believes that China’s antitrust enforcement “will remain robust” in 2021.

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China’s macro leverage dropped by 2.6 percentage points from a year ago to 276.8% at the end of the first quarter, according to the People’s Bank of China (PBoC). This followed a year-on-year decline of 1.6 percentage points in the October-December quarter in 2020.

For the full year 2020, China’s macro leverage rose 23.5 percentage points. 

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Outstanding real estate loans in China increased 10.9% year-on-year in the first quarter to Rmb50.03tr, data from the PBoC showed. The growth was 0.6 percentage points slower than what was seen at the end of last year.

Green loans hit Rmb13.03tr after an annual rise of 24.6%. Over a third of those were loans that are expected to directly or indirectly contribute to carbon emission reduction.

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The State Council’s State-owned Assets Supervision and Administration Commission (Sasac) published a new notice on financial derivatives by Chinese state-owned enterprises (SOEs). SOEs’ subsidiaries which have a high debt ratio and have been operating at a loss for three consecutive years will not be allowed to conduct financial derivatives businesses.

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A consortium led by Ping An Insurance Group reached an agreement with court-appointed administrators to restructure Peking University Founder Group, according to a Friday evening stock exchange filing. The restructuring has been going on for more than a year.

A new Founder group will be formed based on the assets held by Peking Founder and four affiliated companies, covering areas including financial services, pharmaceutical, information technology, education and real estate. Ping An and local government-owned Zhuhai Huafa Group Co will collectively hold at least 73% of the new Founder, under a 70/30 split. Founder Microelectronics will be acquired separately by Shenzhen Shenchao Technology Investment, an investment arm of the Shenzhen government.

Peking Founder’s creditors can choose to receive cash, shares in the new entity, or a combination of the two. Depending on creditors’ choice, Ping An — through Ping An Life — will invest Rmb37.05bn-Rmb50.75bn in the new Founder and hold 51.1%-70% of the entity. An all-cash offer will see the Chinese insurance giant become the new group’s 70% parent, with Zhuhai Huafa holding the remaining 30%.

Separately, Ping An is rumoured to be mulling a merger of Founder Securities into Ping An Securities and has been conducting due diligence, onshore media reported.

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The China Securities Regulatory Commission (CSRC) is taking public feedback for draft rules for the pre-IPO education or ‘tutorial’ process for listings onshore. In China, companies seeking a domestic listing must hire securities houses to go through the process before they can officially file an IPO application. The firms hired usually become the IPO sponsors later.

Securities firms responsible for the pre-listing education must help the IPO candidates make sure that their corporate governance, accounting work and internal control are up to standard. They also need to ensure the companies are familiar with the listing process, information disclosure requirements and relevant rules and regulations, and have a good understanding of the onshore capital markets.

This process should last at least three months. Companies that have completed pre-education should file their listing application within 12 months or go through the process again, the new draft rules require.

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Total revenues at companies listed on the Shanghai Stock Exchange (SSE) reached Rmb38.19tr in 2020, with net profits of Rmb3.07tr, the bourse announced. Sixty percent of the Shanghai-listed firms saw their revenues grow last year, and more than 90% were profit making.

Those listed on the technology-focused Star board posted a 15.51% year-on-year increase in revenues to Rmb408.44bn. The profits attributable to shareholders of the parent companies rose 59.13% to Rmb50.09bn.

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The total market capitalisation at Shenzhen’s mainboard — after its merger with the SME board earlier this year — exceeded Rmb23tr by April 30, the Shenzhen Stock Exchange (SZSE) announced. 

In 2020, some 118 companies listed on the start-up focused ChiNext board under the new registration-based IPO system. They reported an average net profit of Rmb250m in 2020, with some 76 firms seeing their net profits grow last year.

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The Shanghai and Shenzhen stock exchanges published guidelines for M&A deals on their respective sub-boards, Star and ChiNext.

M&A-related listings will be reviewed and approved by the M&A committees at both bourses, instead of by the listing committees, the exchanges said. The maximum time needed for M&A deals, from the application date to the CSRC registration, should be no more than three months for the Star board. Share issuance related to M&As will be approved — or denied — within 60 days on Star, the Shanghai exchange said. Rules by the Shenzhen bourse said two months are needed for these deals, longer than the 45 days previously required.

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The SZSE has unveiled new rules for on-the-ground inspections at IPO sponsors for pre-listed ChiNext companies, following CSRC guidelines released earlier this year.

The bourse plans to launch such inspections at the sponsors under certain scenarios, including if it found problems in the listing applications, or if an IPO is refiled after the previous application had been denied within the 12 months but the relevant problems are yet to be rectified, the SZSE said.

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The Bureau of Financial Supervision for the Shenzhen municipality revised rules on the trial Qualified Domestic Investment Enterprise (QDIE) programme, an outbound investment scheme that was first launched in December 2014. The rules specified that the investment quota assigned under the programme can be used in debt and equity investment by unlisted overseas companies, privately issued stocks and bonds by overseas listed companies, and overseas private equity funds. Any quota assigned will expire after 12 months.

According to the regulator, the State Administration of Foreign Exchange has increased the investment limit for the Shenzhen QDIE programme to $10bn from $5bn at the end of 2020. By then, a total of 48 Chinese institutions had participated in the programme and received $1.55bn of investment quota.

By Addison Gong
03 May 2021