Little-Known Beijing Stock Market Sees Surge of IPOs


HONG KONG—A little-known stock market based in Beijing has become a magnet for companies looking to list their shares, as the gloom hovering over the country’s more famous trading hubs persists.

Regulators have blocked initial public offerings on China’s biggest markets in Shanghai and Shenzhen since July to curb the supply of new shares available for trading, part of a series of measures taken to combat a sharp fall in Chinese stocks that began in the summer.

But at the Chinese National Equities Exchange and Quotations, or NEEQ, a market generally referred to as the “new third board” in China, fundraising has been stronger than ever, hitting a record in August.

The existence of a stock market in Beijing may come as a surprise to many investors. The vast majority of equity trading in China takes place in Shanghai and Shenzhen, where the country’s biggest companies are listed.

But NEEQ, launched in 2006 for the transfer of stakes in unlisted companies, is by some measures catching up fast. The number of companies listed on the exchange has grown to 3,721, up from 356 at the end of 2013. That is more than the roughly 2,800 companies listed in Shanghai and Shenzhen combined, though total market capitalization is still tiny compared with that of the main board in Shanghai.

Companies on the third board raised a total of 52.5 billion yuan ($ 8.3 billion) from June to September, more than double the amount raised in the first five months of the year.

For sure, Beijing’s third board isn’t as accessible as China’s other markets. Trading takes place on an “over the counter” basis, meaning transactions happen directly between participants rather than via an exchange. Companies listed on NEEQ are also relatively small compared with China’s better-known markets. And the third board is a less prestigious place for a company to list than the Shanghai or Shenzhen markets, where regulatory approvals are needed.

Overseas investors can, theoretically, trade on the third board under an existing program that allows “qualified” foreigners to participate in Chinese stock markets. In practice, few have done so.

NEEQ’s size seems to suit some sectors well. China’s investment managers, in particular, have spotted a good trade—selling a piece of their own asset-management firms onto the third board. CSC Group, a private-equity company, raised 3.5 billion yuan in an August IPO, valuing the firm at 28 billion yuan.

The third board’s lack of red tape is a plus for some. Companies wanting to list on China’s main markets need to have had a positive net profit of no less than 10 million yuan in each of the three preceding years and growing revenue for the previous three years. NEEQ has no such requirements. Moreover, there are no limits on the amount that shares can move in one day, in contrast to other Chinese markets where equities can’t rise or fall by more than 10% on any single day.

“I’m positive on the third board, which is the future,” said Chris Ruffle, chief executive of Open Door Capital Management, a foreign asset manager based in Shanghai that covers Greater China markets.

An investor watches a stock board in Huaibei, China, this month. Retail investors play a major role in China’s main stock markets, while Beijing’s NEEQ is dominated by institutional investors.  ENLARGE
An investor watches a stock board in Huaibei, China, this month. Retail investors play a major role in China’s main stock markets, while Beijing’s NEEQ is dominated by institutional investors. Photo: Zhengyi Xie/UPPA/ZUMA Press

Other wealth managers are looking to list on the third board later this year or early next year, including Shanghai-based Rosefinch Investment and, a leading online bazaar of wealth-management products, backed by Chinese social-media giant Tencent Holdings Ltd. TCEHY -0.29 % Also, Hong Kong-listed property developer Evergrande Real Estate Group Ltd. EGRNF -3.39 % has filed to list Evergrande Taobao—the unprofitable football club that Chinese e-commerce titan Alibaba Group Holding Ltd. BABA 0.92 % invested in last year—on the third board.

Rosefinch’s listing could value the company at as much as 20 billion yuan, according to fund managers and bankers, about the same amount as the funds it manages. By comparison, Value Partners Group Ltd. 0806 0.12 % , a top wealth manager in Hong Kong, is valued at about 15% of its assets under management. Rosefinch declined to comment, citing a quiet period before the listing.

NEEQ so far seems to have avoided the excessive valuations often seen in China. Trading on the market is dominated by professional fund managers, whereas in Shanghai or Shenzhen it is often driven by retail investors who can be prone to overreact to market rumors.

Third board stocks are trading at around 30 times their 2014 earnings on average, much lower than the 73 times sported by ChiNext, China’s market for startups, in Shenzhen. Nor has NEEQ escaped the stock slump in China, with its main index falling by 35% since its April peak.

“Although the government didn’t rescue the third board, the good companies are still doing fine there,” said Yang Wenbin, founder of “The market is dominated by institutions, so they are more rational.”

Some investors expect Beijing’s lesser-known market to become more prominent.

“It is the most market-oriented system in China, with little administrative interventions. That’s why it has a lot of room to grow,” said Zhu Junfeng, vice chairman of Shanghai-based TF Securities Co. Ltd., which focuses on the third board. “All those companies that are fed up with the long line at China’s main board are now coming here.”

Write to Wei Gu at [email protected] Markets

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