The China Securities Regulatory Commission (CSRC) has warned of the potential for investors to incur losses arising from speculation in the recently listed shares of “innovative enterprises,” just following the launch of Chinese Depository Receipts (CDR’s) as a new funding channel.
At a press conference on the assessment and pricing requirements for trial enterprises applying for CDR’s, CSRC spokesperson Gao Li said that (高莉) said that innovative enterprises were characterised by high levels of risk.
“Innovation enterprises have the special traits of large investment, high risk, and vulnerability to upset,” said Gao.
“In addition to this A-shares have historically seen speculation in new shares…during the initial period after the listing of innovative enterprises, there is potential risk for sizeable declines after share speculation.
“Both domestic and overseas markets have seen similar cases in the recent past, and many investors have sustained losses.
“For this reason we warn domestic investors of the need to be fully aware of the investment risk of innovation enterprises, to prudently participate in investment in [CDR] trial enterprises, to refrain from following the trend of speculation, blindly chase high returns, and effectively control investment risk.”
Gao Li’s remarks follow the official launch of Chinese Depository Receipts (CDR’s) by Beijing, which provide domestic investors with a channel for acquiring equity stakes in Chinese enterprises listed abroad.
Beijing hopes that CDR’s will facilitate the return to the A-share market of China’s tech giants, providing a boost to both the domestic capital market and tech industry.
Smartphone giant Xiaomi has already emerged as the first Chinese company to apply for CDR’s, hoping to use the instruments to raise as much as USD$3 billion of its $10 billion IPO in Hong Kong.
In order to forestall risk, Gao Li said that CSRC would implement stricter assessment and pricing procedures for enterprises that apply for CDR’s.
“[CSRC] will lawfully conduct comprehensive, multi-vector assessments of trial enterprises from both a financial and non-financial perspective, and the strictness of assessments will be even higher than those required for standard IPO’s.
“Trial enterprises will need to make the protection of investor interests their starting point, and perform truthful, accurate and complete information disclosures.”