HONG KONG: Mainland companies wanting to advance equities offerings continue to show preference for Hong Kong's growth enterprise market (GEM), which since last year has served as a springboard to the city's major trading board.

The China Securities Regulatory Commission (CSRC) said yesterday that the government is preparing to launch a long-awaited Nasdaq-style second board, in Shenzhen, after May 1. The move is seen as a key step toward helping cash-starved start-ups during times of slower economic growth.

"I don't see any immediate competition between the new second-tier board and Hong Kong's GEM," said Castor Pang, a strategist at Sun Hung Kai Financial. "Mainland companies sell shares on the GEM in Hong Kong with an eye on the main board, now that the threshold for GEM members to transfer to the main board is lower, it (GEM) should be attractive to issuers," he said.

Tiancheng Camping, a Wuhan-based (Hubei province) camping accessories manufacturer, said Hong Kong provides an opportunity for tapping the global market while the Shenzhen market can not.

"When my company is eligible to list on the stock markets, I think I would choose Hong Kong over Shenzhen's market since Hong Kong is an international financial market, it provides access to international investors," said Lin Yugang, the company's managing director.

Lin founded the camping products company in 1998; the company records average annual sales of 450 million yuan.

"However, it is good news that there's one more fund raising channel for small enterprises since the banks seem very reluctant to lend to companies that appear to have relatively high risk and low profit potential," he added.

A manager at Hongtian Electronics Company Ltd, a Chengdu-based (Sichuan province) electronics maker, said the newly launched second-tier trading board was very "young" compare to its Hong Kong counterpart.

"Hong Kong has very sound and transparent financial regulation system, it is a preferred market," said the manager, who would only be named as Tang.

Mainland securities regulators began to consider launching a Nasdaq-style second board in Shenzhen in the late 1990s, but the process was delayed after the bursting of the global dot-com bubble in 2000.

To meet the fund-raising demand of start-ups as its economy rapidly expanded, the mainland launched the Small and Medium Enterprise Board on the Shenzhen bourse in 2004.

Over 200 companies now are listed on the board. Regulations are more relaxed than on the main board but are stricter than those expected on the new board.

A CSRC spokesman said in a statement that the launch of the board suited the country's aim of building multi-level capital markets.

"The main purpose is to promote the development of start-ups and other companies with high growth," the spokesman said in a statement published on the regulator's website.

The new rules, also published on the CSRC's website, say any company which meets one of the two conditions will be given approval to go ahead with an IPO on the new board.

(HK Edition 04/01/2009 page16)