China's securities watchdog yesterday said that venture capital (VC) companies under partnership could be allowed to become shareholders of listed companies.
It is a long-awaited move to encourage VCs to bolster domestic companies' listings on the mainland.
The China Securities Regulatory Commission (CSRC) said it would modify the regulations on measures for the administration of securities registration and clearing, which would enlarge the scope for investors. Under the new rule, companies under partnership could open trading accounts to sell shares on the open market.
"The new measures could lift the legal barriers for VC firms under partnership to invest in companies that are to be listed. It's expected to boost the healthy development of private equity (PE) firms as well as the NASDAQ-style Growth Enterprise Board (GEB)," an official with the CSRC said at a media conference yesterday.
Previously, only individuals and specifically qualified companies could open trading accounts.
"This new provision in the CSRC consultation draft is good news for partnerships and non-legal VC and PE firms. The new rules will remove this uncertainty in their pre-IPO investments and will enable their exit from those companies upon their listing on the GEB," said Hubert Tse of Yuan Tai PRC Attorneys, who advised DBS Private Equity on its $100 million onshore renminbi fund formation.
Latest figures show that 28 companies have been given the green light to list on the GEB. Among them, 23 are backed by VC or PE companies.
"With the new regulations, we could expect more VC companies under partnership to grow rapidly and help the industry integrate into the global market," said Gavin Ni, founder and CEO of Zero2IPO.
According to Ni, globally, about 90 percent of VC companies are established in the form of partnerships.