SSE STAR Market approves first spin-off listing

Five companies passed through the 5th and 6th review meetings by the newly launched SSE STAR Market on Wednesday. Shanghai MicroPort Endovascular MedTech Co., Ltd. (MicroPort Endovascular) is one of them, which became the first spin-off listing company to get approval. 

MicroPort Endovascular is one of the subsidiaries of MicroPort Scientific Corporation (00853.HK), which has listed in Hong Kong.

"The regulators didn't encourage domestic spin-off listings in the past, as there were concerns it might spur speculation or problems such as financial misbehavior or corporate independence issues," said Ge Shoujing, senior analyst at the Reality Institute of Advanced Finance.

"With the launch of the tech board, which introduces a registration-based IPO system, the regulatory mindset has changed to loosen control and allow the market to decide which companies should be listed," he added.

Now the SSE STAR Market is becoming a hotbed for companies. According to a report by Deloitte, 90 to 110 companies may be listed this year on the Market.

At least nine companies listed in Hong Kong and the Chinese Mainland has decided or are mulling to spin off parts of their business units on the Market, reported by Bloomberg.

The SSE STAR Market has attracted wide attention partly because of its more straightforward listing process, including waiving restrictions on how companies are priced, theoretically making it less onerous for applicants.

Another factor for SSE STAR Market being attractive is due to its relatively higher valuations.

"Compared with listing spin-off units in Hong Kong, companies may enjoy higher valuations on the tech board, given the higher valuations of the A-share market," said Peng, an analyst at Lianxun Securities Co. "The vetting process would also be simplified given it will have to be reviewed only by the domestic regulator," Bloomberg reported.

"Spin-off listing on the tech board is definitely an attractive investment theme for the stock market, given these subsidiaries are expected to enjoy higher valuations and better branding thanks to the huge attention on the tech board right now," said Fu Lichun, an analyst at Northeast Securities Co, quoted in a Bloomberg's report.

Domestic spin-off listings mean that investors will have more fresh buying opportunities, while parent companies could streamline operations and enjoy seeing the boosts of their share prices, at least in the short term.

"The potential number and scale of spin-offs is expected to be very large in the future," Fu said.