'Unicorn' has a high level of heat, and the current stock issue is not far behind by issuing CDRs to return A shares. The first financial reporter learned from relevant brokerage firms that the participating brokers are actively preparing for Jingdong, Alibaba’s CDR. Issue issues, the fastest expected in the third quarter of this year.
March 30, "The General Office of the State Council forwarded the Notice of the China Securities Regulatory Commission on Several Opinions on Launching Pilot Projects for Issuance of Domestic Shares or Depositary Receipts within the Innovative Enterprise" announced to the public on the internet, big data, cloud computing, artificial intelligence, software and integration In seven major areas such as circuits, high-end equipment manufacturing, and bio-pharmaceuticals, pilot companies can choose to apply for the issuance of stocks or DRs based on relevant regulations and their actual conditions.
In the evening of the same day, the China Securities Regulatory Commission sought opinions on the revision of the IPO management measures, canceled the three consecutive years of profitability requirements for the issuance of domestic shares or CDRs by innovative companies, and added 'net cash flow in the last three accounting years accumulated to exceed RMB 50 million, or The three-year operating income accumulatively exceeds RMB 300 million'.
CDR is in full swing
Recently, CDR, a dusty topic for many years, has been pushed to the top of the cusp - without privatization, demolition of variable interest entities (VIE), delisting from the United States, and listing on A-share backdoors, BATJ and other Chinese technology unicorns will be able to return To China. This is attractive for A-shares that desire new economy companies.
The reporter recently learned from the relevant responsible brokers that CITIC and CSC are taking the lead in promoting the return of Alibaba and JD.com to the A-share market. Informed sources also told reporters that the CDR project was led by a small team. The CDRs of these two number one pilot companies are likely to come out in the third quarter of this year as soon as possible.
At the beginning of March, close to the SSE disclosed to the CBN reporter: 'Currently, the exchange's internal teams are studying the Shanghai Luntong DR model and the China General Shares' return to the DR model, and are divided into two different lead agencies.'
In the same period there were also media reports that Unicorn issued CDRs to return A shares to delineate eight pilot companies, including BATJ Big Four (Baidu, Alibaba, Tencent and JD.com), Sina Weibo, Netease and optical lens equipment vendors. Jingdong insiders told reporters at the time, 'We have taken note of the media's reports on the changes in the capital market policy and are actively paying attention to this matter. If the policy allows, JD.com is also very willing to return to the domestic market to achieve the listing of the two places.'
A person in charge of the Hong Kong Stock Exchange Investment Bank told reporters that the regulator is currently reviewing some of the details. It is expected that there will be some restrictions on the investor’s transaction amount and investment experience, and the CDR should be denominated in RMB. The DR, CDR is expected to be difficult to convert the dollar or convert it into ADR (American Depositary Receipts), then it may also split 1 share into 10 CDRs and so on.
As far as global experience is concerned, all DR forms use the U.S. dollar as the transaction currency. The U.S. dollar is selected as the transaction currency because it is freely convertible, so that it can connect basic securities and depository securities in both markets (ie, the basis of the main listing place. Securities can be converted freely with DR, and their prices in different markets should also be consistent, otherwise there will be arbitrage, and eventually the price will converge.
This process also achieved the issuance and cancellation of the DR. Specifically, the broker on behalf of the investor brought the underlying securities to the custodian bank and wished to convert it into ADR issued by the company in the United States. At this time, the custodian bank is equivalent to 'issuing' ADRs to the broker; on the contrary, if it wants to use ADR to exchange basic securities, the custodian bank will 'repeat' ADR.
'Since China still implements certain capital controls and RMB is not yet freely convertible, the issuance of CDR may have characteristics of China itself. For example, the funds raised may be limited to China and may be denominated in RMB. CDRs are not yet convertible and arbitraged. However, this should be achievable in the future of Shanghai Luntong. 'The above person close to the Shanghai Stock Exchange told reporters.
Of course, in the past, there was also a view that CDR denominated in renminbi could greatly advance the process of convertibility of the renminbi capital account and increase the renminbi’s international status.
Market feedback is good and bad
From the perspective of global experience, CDRs are beneficial to A-shares, for example, compared with the traditional return path from US stocks to the demolition of VIE structure to A-share backdoor, and the existing structure of CDR Retention Company in A-share issuance. , Low time costs, low financial costs, low regulatory costs, increased financing channels, reduced financing costs, etc.
The largest DR issuance market—the United States. Since the 1980s, its ADR market has continued to grow. The number of companies listed on the ADR system has continued to increase. In 2017, 29 companies chose to conduct IPOs in ADR mode, reaching the highest level in calendar years.
In addition, the size of ADR-funded issuance is also continuing to grow, reaching 32 billion U.S. dollars in 2014 (including Alibaba financing of 25.03 billion U.S. dollars). From the perspective of industry distribution, more than half of the financing amount has entered the Internet industry and alternative energy sources. 2. Emerging industries such as resources, business services and software are areas favored by overseas capital.
It is worth mentioning that ADR's liquidity and trading activity are not lower than common stocks. According to Wind data, the median daily turnover rate of American ADR listed companies is basically the same as that of US stocks; we are familiar with Chinese technology stocks. Unicorn (BAJ, etc.) average daily turnover rate is even higher than the United States tech stock unicorn.
Morgan Stanley's research also found that CDR may have a certain premium over ADR. According to HDFC Bank, the largest private bank in India that issues ADR in the United States, foreign investors’ direct access to the Indian market is still limited. After its issuance of ADR, it has a higher premium than basic securities, and the average premium since 2017 is 15%. Considering the CDR or unable to convert arbitrage, CDR may have a higher premium than ADR.
For the CDR, the market also has certain concerns. There are two modes of CDR listing: First, the issuance of new shares, which will dilute the equity of the existing shareholders; Second, the re-issuance of old shares, that is, the company needs to take out treasury shares or repurchase stocks to provide CDRs If the company currently has insufficient stocks (for example, Alibaba shares only account for less than 1% of the market value), and the company does not want to issue new shares, then it must buy back from the secondary market. This may have a certain impact on market sentiment in the short term.
In addition, the market worried about the issuance of CDRs or technology stocks that hit A-share listed companies, especially software, Internet companies may face short-term valuation pressure. The logic behind this is: CDR may attract liquidity; A-share companies generally have high valuation Offshore competitor companies. For example, the A-share software services and technology hardware price-earnings ratios are 58 and 46 times respectively in the past five years, while the relevant industry valuations in the MSCI China index are only 42 and 27 times, respectively.
What is more important is that all circles at home and abroad generally believe that to really attract new economic enterprises to return to the A-share market, the fundamental change in the issuance system is the key. At the same time, for the A-share market with a large number of retail investors, how to attract price fluctuations? At the same time as large new economic enterprises, good investor education and protection is also the key to consider.