Growth Enterprise Market: New Financing Channels for Small and Medium-sized Enterprises

    The Interim Measures on the Administration of Initial Public Offering (IPO) and Listing on Growth Enterprise Market (GEM) were released by the China Securities Regulatory Commission (CSRC) on March 31 and took effect on May 1.

    In view of the threats to China's rapid economic development by the global financial crisis, some people believe the move provides a better financing platform for small and medium-sized enterprises (SMEs) and other companies with the potential to "go big" who don't currently qualify for the main board. The Growth Enterprise Market (GEM) on the Chinese mainland has been in preparation for more than ten years, but due to the immaturity of the main board and ongoing necessary refinements to the basic system, the GEM has been postponed time and again.

    A spokesman for CSRC stated at a press conference that the government move at this time aims to stimulate private investment, prompt upgrading of industrial structures and create more job opportunities.

Eager for GEM

    Beijing Origin Water Technology Co., Ltd. sought to list overseas a few years ago, company executive vice general manager He Yuanping, revealed, but has now decided to list on the domestic market, thanks to the GEM move. "We have already gone through an internal audit by an investment bank. Soon we'll submit our application to the CSRC," he told this reporter.

    Established in 2001, Origin Water specializes in sewage disposal and reuse. It has contributed to several major projects including the water system of Beijing Olympic Forest Park and water disposal at the National Center for the Performing Arts. In 2008, the company's operating revenue reached RMB 220 million, with RMB 75 million of that in net profit. The company is qualified for the GEM.

    The threshold for listing on the main board is relatively high: more than annual RMB 50 million net cash flow in the past three financial years, or accumulated operating revenue of more than RMB 300 million in the past three financial years. It is beyond the reach of small and medium-sized enterprises. According to the recent release, GEM candidates should show a minimum of RMB 10 million net profit in the past two years, or demonstrate RMB 5 million in profit with no less than RMB 50 million operating revenue in the past year, and a minimum of 30 percent increase in the operating revenue in the last two years.

    He Yuanping asserts that his company intends to strengthen its human resources and invest more funds in projects already on the books with trusted clients. It needs RMB 500 million to move forward with these plans. He anticipates, "Listing on the GEM will help raise our company profile, attract more professionals to our talent pool, help us standardize our business operations, and enhance our ability to compete with foreign rivals."

    It is possible that Beijing Origin Water and several other enterprises will become the first group to be listed on the GEM.