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OTC board slated for new listings

By Qiu Chen  (China Daily)

13:27, September 07, 2012

An additional six companies will be listed for trading on China's New Third Board Friday, according to an announcement released Wednesday by the Shenzhen Securities Information Co (SSIC), a move which marks the expansion of this experimental over-the-counter (OTC) equity market.

Having emerged in 2006 out of a trial program allowing fledgling high-tech enterprises in Beijing's Zhongguancun Science Park to fund their growth via share transfers to investors, the OTC program was approved to expand by the State Council to cover companies operating in technology development zones in Shanghai, Wuhan and Tianjin, the China Securities Regulatory Commission announced on August 3.

As China's New Third Board grows, it's hoped that the nation's small but forward-looking businesses can secure funding from the market, as banks are typically tight-fisted when it comes to extending credit to up-and-coming companies, no matter how promising they might be, Dong Dengxin, director of the Financial Securities Institute at Wuhan University of Science and Technology, told the Global Times.

"Most companies trading on the New Third Board have less than 50 million yuan ($7.88 million) in net assets, whereas companies listed on the small and medium-sized enterprise (SME) board in Shenzhen usually have several hundred million yuan in assets," said Dong. "But, while these companies are in their early stages of development, they can usually experience quick growth once they are well funded."

During the first half of this year, 70 percent of the 125 companies trading on the New Third Board achieved growth relative to the same period in 2011, according to information released by the SSIC. These firms pulled in 5.9 billion yuan in revenue during the same period, up 22 percent year-on-year, SSIC data show.

But some analysts have voiced concern that this expanding board may divert capital away from China's A-share market.

"The ChiNext board will be the most affected by the OTC market," said Cai Junyi, chief investment consultant from Shanghai Securities.

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