Decoding The Non Public Transfer Mechanism Of The Science And Technology Board: Guiding Underground Subtraction And Regulation, And Enhancing The Enthusiasm Of Venture Capital

More institutional breakthroughs in the capital market will soon appear in the science and technology board.

A few days ago, the Shanghai Stock Exchange announced the implementation of rules for the reduction of shares by the shareholders of the Shanghai Stock Exchange on the basis of the brew of the science and technology board.

? ? ? According to this regulation, the shares before listing can be transferred and placed under the framework of this system after the expiration of the lifting of the ban. In the view of the insiders, this will further shorten the investment exit cycle of venture capital for the company, improve the efficiency of venture capital utilization, increase the enthusiasm of venture capital companies to participate in the investment of science and innovation board, and at the same time, guide some of the current enterprises. The gray violation reduction activities entered the compliance framework and promoted the improvement of market standardization.

It is worth mentioning that since the transfer and placement of old shares are carried out in a private way, this transaction mode will also help stabilize market volatility and enhance the effectiveness and value discovery function of the market.

Non public conversion

A few days ago, the Shanghai Stock Exchange made clear rules for shareholders of the listed companies of the Chuang Chuang board to reduce shares in the form of non-public transfer and placing.

According to the detailed rules, shareholders of the company can carry out the reduction of shares through the above way, and this way has become the fourth stock trading and reduction methods after the centralized auction, block trading and agreement transfer.

"This mechanism is mainly to serve the reduction requirements of some old shares (IPO shares issued before the listing)." A broker close to the exchange said, "in the past, when the lifting of the ban period was reached, the old shareholders represented by venture capital often reduced and withdrew from the market in order to exit the products, which interfered with the legitimacy of stock pricing. On the other hand, they also exacerbated market volatility, and subsequently reduced the new rules to a certain degree, but this kind of non market mode was reversed. This aggravates the pressure of specific time point reduction, and this non-public transfer and placement is created in this context.

In fact, the mechanism has also learned from the mature market's "resale" system to a certain extent.

"Old stock resale is actually a relatively mature mechanism in overseas markets, but the pilot implementation of A shares is only just beginning." An investment bank in Shanghai said.

It is worth mentioning that the above rules also outline certain boundaries in the light of the transaction elements to be reduced by non-public transfers.

According to the rules, it is necessary to make inquiries for the price of a publicly transferred stock to at least 15 investors, and the base price shall not be less than 70% of the average price of the first 20 trading days. At the same time, the transfer scale needs to reach more than 1% of the total share capital, and the new shareholders of the transferee shall not be transferred again within 6 months.

"The overall trading factors and refinancing are quite similar. If the old shareholders or listed companies have reduced demand and the listed companies can refinance, then it is obvious that the new strategic investors or refinancing investors can be introduced through the transfer of the old shares." The investment bankers said.

In the introduction of non-public investors, the rules are clearly defined as "professional institutional investors with corresponding pricing power and risk tolerance", but at the same time, they also open up more space for more institutional investors. For example, eligible private equity funds and insurance funds can participate.

"Investors in this stage are mainly institutional investors, such as public private equity funds and insurance funds." A majority of public offering agencies in Beijing said, "most of these institutions have long-term investment characteristics, which can play a role in anchoring to a certain extent. At the same time, the larger scale of management and the volume of funds can also help to participate in this business more easily."

Amnesty "illegal reduction"

The opening of this system space is also expected to further bring the effect of "comfort" to illegal activities.

In twenty-first Century, the economic news reporter was informed that in the traditional IPO business, many shareholders who were limited by the new rules were trying to concentrate on the reduction by holding forward agreements, income swaps, and changing platform for holding shares, some of which were suspected of violations.

For example, the seller who seeks advance cash can advance a certain proportion of the transaction by signing the OTC forward transaction agreement with the buyer. After the expiration of the lifting period, the remaining transaction will be completed and the exit can be achieved through bulk and agreement. For example, by transferring the shareholding platform, the seller can also meet the original shareholder's demand for reduction.

"Some agencies are indirectly transferred through the transfer of shareholding platforms. Usually this kind of situation talks about a relatively good price, and then there is a gold master willing to pick up, sometimes the price is very low, which is 50% of the market price, because the entry cost of venture capital is not high, the yield is relatively high, reducing the potential price is more conducive to the realization of such transactions." An intermediary agency engaged in underground subtraction business said, "this phenomenon is still not many in the science and technology board, mainly in the motherboard and the GEM market. It is a derivative product after the new regulation was reduced in 2017."

However, many illegal reduction modes, on the one hand, are suspected of committing a disguised violation of the new rules, and on the other hand, it is easy to bring potential compliance risks to both parties and the market.

"A lot of such transfers are achieved through a long-term agreement. Sometimes, the seller will provide additional guarantee for the stock price guarantee and the difference in order to ship the goods, but once the stock price falls sharply, the underground transfer will turn over and lead to a legal dispute between the two sides." A securities lawyer at a large law firm in Beijing pointed out.

In the view of the industry, the implementation of the system of non-public transfer and placement will legitimize part of the demand for subtraction. According to the detailed rules, after the expiration of the old stock limit, shareholders can reduce the number of holdings and holding time by reducing the initial shares through non-public transfer.

"Non public transfer and placement actually allow the old shareholders to have a system space after the lifting of the share ban, which can more effectively reduce share holdings, instead of adopting some edge ball methods to reduce their holdings, which is conducive to improving the standardization of market behavior. At the same time, legalization of such activities can also be more effective supervision of these transactions." The broker who approached the exchange pointed out that "the underground activity equivalent to this kind of circumvention and reduction of the new regulation has been encouraged to some extent."

In addition, this measure will also hedge the fluctuation of stock prices in the traditional reduction process to a certain extent.

"If it is reduced by bidding, the fluctuation of stock price is inevitable, and it may lead to some passive market risks." The broker said, "however, if the reduction is carried out through a non-public transfer or placement, it will not involve the marginal impact on the stock price, and then it can effectively maintain the stability of the stock price to a certain extent."

How to prevent profit transfer

In the industry view, the brewing of the rules will further boost the enthusiasm of venture capital to participate in the early investment of A share companies.

In fact, since the implementation of the new regulation in 2017, the difficulty of venture capital withdrawal has been increasing. Although regulators have established a reverse link system for investment period, some venture capital institutions still need to balance their exit demands and stable stock prices in the course of practice.

"Because of the problem of reducing the new rules, many venture capital investment cycles have been lengthened in disguise, and some products have even been considered during the design period." Investment manager of a venture capital company in Central China said, "however, this situation has hindered the investment enthusiasm of venture capital to participate in early ventures."

"Private equity and venture capital can exit earlier because products need to exit and cycle restrictions. Obviously, they can improve the efficiency of their capital use and raise the returns of their management scale." The former investment manager said.

In its view, the landing of this policy will benefit the early capital formation of science and technology enterprises.

"If venture capital can get better flexibility under this non-public transfer mechanism, they will also be more willing to invest in early ventures." The above investment manager pointed out that "this can promote a virtuous circle in the capital market, and also enable the primary market to contribute more outstanding companies to the A share market."

In addition, people close to regulators believe that after the successful implementation of the mechanism, the possibility of replicating them to the main board, the gem and the selected layer will not be excluded.

"Chuang Chuang plate is an experimental field. If the system is tried smoothly, it can be duplicated, and it will not be excluded from other sectors or markets." A broker who is close to regulators said in Beijing.

However, some analysts believe that the potential buyers of the system are mostly asset managers and need to guard against potential benefits and agency crises.

"Most potential institutional investors use investors' money rather than their own money. In this process, institutional investors should take precautions against the old shareholders who are holding the funds of the society," he said. A head of a private equity agency in Beijing said, "if the regulation is inappropriate, or the internal control of some public institutions and insurance agencies fails, there may still be a problem of interest transmission, which is a need for caution under the new system."

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