Shanghai (ZXZC)- Geely Automobile Holdings Limited (called “Geely Auto” for short) announced on June 17 that its board of directors has approved a preliminary proposal for the possible issuance of RMB shares and listing on the Science and Technology Innovation Board (Sci-Tech Board) of the Shanghai Stock Exchange (SSE).

The decision comes as China's central government is stepping up capital market reforms to encourage domestic listings. It is also good news for the China's Nasdaq-like Sci-Tech Board, which is striving to attract as many as more high-tech firms.

The company said the proposed issuance of the RMB shares shall be conditional upon and subject to, among other things, market conditions, the approval of shareholders at the general meeting, and the necessary regulatory approvals.

(Geely Auto's WeChat account)

According to Geely Auto's preliminary plan, the RMB shares to be issued shall not exceed 15% of the company's issued share capital as enlarged by the issuance and allotment of the RMB shares contemplated under the proposed issuance of RMB shares. Besides, the RMB shares will all be new shares, and no conversion of the existing shares will be involved.

Regarding the nature of the shares, the RMB shares to be listed on the Sci-Tech Board will be ordinary shares that enjoy equal rights to Geely Auto’s existing ordinary shares which are listed on the Hong Kong Stock Exchange, featuring the same par value of HK$0.02 per share, the same rights to vote, dividend and return of assets. 

After deducting the issuance expenses, the proceeds gained from the aforesaid issuance are set to be used for business development and general working capital of Geely Auto and its subsidiaries.

Geely Auto, whose parent is Zhejing Geely Holding Group, is currently listed on the Hong Kong Stock Exchange with a market capitalization of HK$116.77 billion ($15.07 billion) when the closing bell ran on June 17.

The Zhejiang-based automaker has publicly expressed its intention of returning to the domestic A-share market. However, it is rather difficult for Geely Auto as a red-chip company as it has to cope with a slew of complicated procedures and the laws and regulations within and without the Chinese mainland.

Now, the time has come. According to a document released by the China Securities Regulatory Commission on April 30, the red-chip companies whose market capitalization is not fewer than 200 billion yuan ($25,805,620,000), or which possess self-developed and global leading technologies, boast strong scientific and technological innovation capabilities and have a market capitalization of above 20 billion yuan ($2,580,562,000), will be encouraged to go public on Sci-Tech Board under a pilot program.

“As an industry's bellwether, Geely's return to A-share market may set an example for other firms that have similar attempts. How it will perform is likely to affect the market valuation of relevant companies,” said Pan Helin, executive director of the Digital Economy Academy of the Zhongnan University of Economics and Law.

Geey Auto considered that opening the financing channel in the domestic A-share market will help the company further diversify its financing methods and optimize its capital structure, so as to effectively elevate its capital strength and supplement the capital for the strategic development of automobile electrification, intelligence, connectivity and sharing.

In terms of whether Geely's move will lead to a spree of automakers returning domestics capital market, Mr. Pan said it is normal to see many automakers intend to go public domestically if there were enough proper polices and other supporting factors. Besides, they are eager to raise more money through this method as this is an industry highly dependent on capital.