In the recent seminar on "Construction of Blue Chip Market and Guidance for Rational Investment", the Shanghai Stock Exchange (SSE) announced to inject new blood into the blue chip market by further optimizing its structural layout, in a bid to provide enough targets and platforms for rational investment and value investing. However, in fact, thanks to development for many years, the SSE's blue chip market has made great achievements in the market scale, the services for the real economy and other aspects. Besides, the structural layer of the SSE's multi-tiered blue chip market, whose growth focuses on potential blue chips, rising blue chips and typical blue chips, has been further defined.
According an SSE official, as the current Chinese economy is at the stage of "Adjusting Economic Structure and Changing Growth Pattern", the SSE will continuously strengthen the services for the structural transformation of national economy, private enterprises and SMEs in the future, thus reflecting the supports of the blue chip market for the real economy.
The SSE has basically established the multi-tiered blue chip market and seen smaller-share-number IPOs year by year.
At the recent conference for the founding of the 14th Public Offering Review Committee of Main Board, Chairman Guo Shuqing of the China Securities Regulatory Commission (CSRC) said that it was a must to take the opportunity in the market reform and development to properly speed up the reform in the key areas and processes. In addition, Chairman Guo also mentioned an array of requirements including those of cultivating institutional investors as well as speeding up the improvement of the multi-tiered market system construction in his speech.
As the organizer of the capital market, the SSE has put great efforts in constructing and cultivating the blue chip market, promoting the development and perfection of the multi-tiered capital market and enhancing the capital market's capability of serving the real economy. Upon many years of development, the SSE's blue chip market has made great achievements in the market scale, the services for the real economy and other aspects. On one hand, with the steady increase in the number of listed companies and the expansion of financing scale, the total capitalization of stock market exceeded RMB16 trillion, ranking the second in Asia and the sixth in the world. On the other hand, the SSE constantly richened the content and extension of serving the real economy, including serving state-owned enterprises and private ones, supporting listing of large enterprises and that of SMEs and promoting the structural adjustment and industrial upgrading of listed companies by reorganization, merger and acquisition while helping enterprises enter the "fast development lane" through IPO. Upon several years of efforts, the structural layer of the SSE's multi-tiered blue chip market, whose growth focuses on potential blue chips, rising blue chips and typical blue chips, has been further defined, and the capability of providing effective financing services for the real economy of different scales and types at various growth stages has been further improved.
According to data, during 2010 and 2011, a total of 65 enterprises conducted their IPOs on the SSE's market and the financing scale totaled RMB291.3 billion, realizing drastic increase compared with the data during 2008 and 2009. At the same time, the SSE's market gradually showed features such as wider industrial coverage, more diversified geographical distribution, increasing proportion of listed private enterprises and smaller-share-number IPO. For instance, more and more enterprises in the industries including the strategic emerging industry (represented by companies like Sinovel Wind Group Co., Ltd. and Beijing Jingyuntong Technology Co., Ltd.), the cultural industry (represented by companies including People's Daily Online Co. Ltd.) and the service industry (represented by companies such as Jointown Pharmaceutical Group Co., Ltd.) have been listed on the SSE. Besides, among 65 companies listed in 2010 and 2011, 54% are private ones and most being-examined companies choosing to be listed on the SSE are private ones. In addition, the SSE has seen smaller-share-number IPOs year by year via strengthening the services for SMEs. For example, in 2011, enterprises, whose total issued shares were between RMB50 million and RMB80 million, accounted for one third of total 39 IPO enterprises of the SSE in the whole year. Up to now, according to the listing and applying of the SSE in 2012, the enterprises whose issuance scales positioned at the aforesaid range accounted for about one third. In 2011, the median of IPO scales of 39 IPO enterprises of the SSE was 100 million shares while that has been 86.67 million shares so far in 2012, realizing drastic decrease compared with 282 million shares in 2008 and 520 million shares in 2009.
Concerning the reasons for these achievements and changes, an SSE official said, "As the Chinese economy is at a crucial stage for adjusting the economic structure and changing the growth pattern currently, the development of the real economy urgently needs a diversified capital market. The SSE should take this good opportunity to strengthen the services for the structural transformation of the national economy, private enterprises and SMEs, thus reflecting the supports of blue chip market to the real economy."
The SSE follows closely the real economy and innovates in service mode.
In a bid to better serve the real economy and further improve the securities and futures market services against economic weaknesses including development of enterprises related to agriculture, rural areas and farmers, cultural and creative industry and SMEs, the SSE strengthened the support of the national economy to the economic weaknesses and enhanced the connection of the capital market with key industries including the scientific innovation industry, the modern agriculture and the cultural industry by carrying out market services and cultivation work at the front line, visiting provinces clustering private enterprises and SMEs and other ways.
Focusing on the development goal of the multi-tiered blue chip market, the SSE emphasized on the strategic significance of market services to the development of the blue chip market. Upon several years of efforts, the SSE has gradually formed a systematic structure of market services by boosting the service intensity, improving the service quality, broadening the service objects and changing the service means. According to sources, the SSE established the Offering and Listing Department in 2008, a functional department for market services; in this year, the SSE established the training service center for enterprises to focus on trainings for enterprises' restructuring. The SSE also adjusted the system of its Research Center, for the purpose of strengthening the research and counseling on the issues of planned-to-be-listed enterprises.
In this process, centering on the principle of "stepping out", the SSE extended the frontier of services and selected the backbone in the whole exchange to carry out the market services and cultivation work at the front line. For instance, from 2010 to 2011, the SSE's market service personnel visited 1,900 front-line enterprises, which covered all provinces, municipalities, autonomous regions and 80% prefecture-level cities in China; concerning the common issues in the process of corporate restructuring for listing, the SSE had totally held nearly 50 seminars and training classes. The SSE's services covered townships, towns and villages of Jiangsu, Zhejiang and other regions clustering private enterprises and SMEs.
In addition, it is also an important channel to carry out well-targeted professional services by establishing the cooperative mechanism with local governments and market intermediaries. In recent two years, the SSE has newly signed memorandums of cooperation with more than 10 provincial, municipal and autonomous regional governments and several prefecture governments. The SSE has gradually established a national promotion network for services and training system for planned-to-be-listed resources by various measures.
Moreover, the SSE emphasized on strengthening the supports and services for the national economic weaknesses and enhancing the connection of the capital market with key industries including the scientific innovation industry, the modern agriculture and the cultural industry. For example, the SSE actively advocated the cultural enterprises to make full use of the capital market to grow bigger and stronger. From 2010 to 2011, a total of over 10 cultural enterprises had been well prepared for making full use of the capital market to conduct the direct financing. Among these enterprises, 5 ones have gone public or passed the approval of the CSRC, thus promoting the grand development of the cultural industry.
The systematic market services of the SSE strongly promoted the sound development of the blue chip market. Moreover, its service level, concept and mode have been preliminarily recognized by the market.
"In the recent years, the SSE's market services have better met the actual needs of enterprises by fixing on the enterprises and market. Thanks to the advantages of the SSE during the close cooperation with the governments and market intermediary institutions, the blue chip market became bigger and stronger and the capability of the capital market to serve the real economy has been improved." said by an analyst.
The SSE has large development space for serving SMEs.
"By accelerating the construction of the multi-tiered capital market system and improving the structure of the market system, differentiated financial services can be provided for enterprises of different scales and types at various growth stages to speed up their development," pointed out Chairman Guo Shuqing of the CSRC in his keynote speech at the 9th Forum on Financing of Small and Medium Enterprises last year.
The SSE has large development space for serving SMEs. An SSE official said, "Compared with the urgent demands of the real economy, what the SSE has done in its main board market is far from enough to serve SMEs by facilitating the rapid growth of the real economy, supporting the structural transformation of the national economy and implementing the multi-tiered capital market system. The SSE still has large development space and great potential for serving the blue chip market.
At present, the number of SSE-listed companies amounts to 942, which, however, accounts for a very small part of tens of thousands of stock companies at certain scale. The direct financing function of the stock market is not so developed as other financing methods. Besides, SMEs in its true sense have a very small proportion in listed companies on the SSE and the Shenzhen Stock Exchange (SZSE). This means that they have got no effective support from the capital market. The entire capital market keeps great emphasis on the services for non-SMEs. Therefore, the SSE faces a challenge about how to fully tap the potential of the capital market to better serve the real economy for the construction of the blue chip market.
Moreover, the SSE is also confronted with some extra problems about market services as quite a few government departments, intermediaries and enterprises have many cognitive misunderstandings on the blue chip market.
For instance, there is a misunderstanding that the SSE offers services only for large enterprises as it poses very high requirements. Actually, according to the division of listing on the SSE and the SZSE, the enterprises issuing less than 50 million shares (inclusive) are required to go public on the SZSE, those issuing more than 80 million shares (inclusive) to go public on the SSE, and those issuing between 50 million shares and 80 million shares to choose the listing location on their own. In other words, the enterprises issuing more than 50 million shares can choose to go public on the SSE.
Furthermore, there is another misunderstanding that the price-to-earnings ratio is lower on the main board of the SSE. In fact, investors, price inquirers and regulatory policy and environment are almost the same for the IPO in different securities markets in China. Therefore, the price-to-earnings ratio of a given enterprise is only closely related to the enterprise itself and the characteristics of the industry but not directly related to the board for listing. Data show that in 2011, the number of enterprises issuing between 50 million shares and 80 million shares on the SSE accounted for one third of 39 enterprises in total for IPO and these enterprises achieved the price-to-earnings ratio of 43 times on average. In the same period, 13 enterprises issuing between 50 million shares and 80 million shares went public on the SZSE SME board, with the price-to-earnings ratio of 43 times on average. This shows that the price-to-earnings ratio for IPO is about the same on both exchanges.
In addition, some enterprises hold that they can harvest a higher premium when artificially shrinking the share capital in the listing. As a matter of fact, the share capital of an enterprise should correspond to its own asset size and profitability and match with its actual conditions. The research on enterprises' IPO on the main board of the SSE and the SME board of the SZSE from 2010 to 2011 shows that most enterprises set the earnings per share between RMB0.2 and RMB0.8, and enterprises yielding the earnings per share between RMB0.2 and RMB0.6 realized higher price-to-earnings ratio on average for IPO than those yielding the earnings per share between RMB0.6 and RMB0.8. Besides, the practices of shrinking the share capital artificially before listing, issuing shares at a high price and having a high proportion of bonus shares or capitalized shares after listing have aroused much attention of the regulatory authority as they distort the true value of the enterprises to some extent and may lead to insider trading.
"The cognitive misunderstandings remind the SSE to work hard on market services and also gradually remove the misunderstandings on the market for the purpose of creating a favorable environment for the SSE's blue chip market to serve the real economy," said an SSE official.
In future, the SSE will carry on with the strategy of market-oriented services, further strengthen the consciousness of service, innovate in the service mode, release the vitality and actively promote the construction and improvement of the multi-tiered capital market system based on the needs of the real economy and the actual condition of the blue chip market. What's more, the SSE will cooperate with the CSRC to deepen the reforms in merger, acquisition and reorganization, dividend distribution, delisting and other aspects, and earnestly propel the SSE's blue chip market to play a bigger role in boosting the structural transition of the national economy and the development of rising industries as well as serving the economic growth and social progress.
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Shanghai Stock Exchange Boosts Cultivation Of Blue Chip Market - The SSE Focuses On Structural Transformation For Serving The Real Economy
Date 07/06/2012