Six New Funds Will Use Chinese Depository Receipts to Invest in Unicorns

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Six publicly offered funds that will use Chinese Depository Receipts (CDR) to focus specifically on unicorn companies valued at over USD$1 billion are on the verge of obtaining approval from the authorities.

Shanghai Securities Journal reports that the six funds could obtain approval as early as next week, and that each is set to have an issuance ceiling of 50 billion yuan.

The funds will use Chinese Depository Receipts (CDR’s) to obtain equity stakes in unicorn enterprises staging a return to China’s A-share market, collectively providing up to several hundred billion yuan in funds.

According to publicly available information the six companies that have applied for the establishment of these CDR-based  publicly offered funds include Nanfang, Huaxia, E Fund, Harvest Fund Management, Huatianfu Fund Management and China Merchants.

The funds are also expected to purchase debt instruments including AAA-rated corporate bonds.

CDR’s are a new financial instrument that allow domestic Chinese investors to acquire equity stakes in overseas-listed companies.

Beijing hopes that the launch of the instruments will help to bring Chinese tech giants listed abroad back to the domestic A-share market, giving a boost to both the securities sector and the tech industry.

Smartphone giant Xiaomi is expected to use CDR’s to raise up to 30% of its USD$10 billion Hong Kong IPO scheduled for July via mainland investors.

Industry insiders say that the six funds awaiting approval will enable Chinese unicorns returning from abroad to obtain long-term capital support, as well as provide an additional channel to retail investors to reap the benefits of ownership in these companies.

The funds could be ready for sale as early as next week, with a five day issuance period for retail investors set to run from 11 -15 June, and availability to institutional investors kicking off on 19 June.

One source said that ICBC, Bank of China, China Construction Bank and China Merchants Bank are some of the lenders entrusted with sales, while a ceiling of 500,000 yuan will be set for individual investors.

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