By Wang Lan (China Daily)
Updated: 2008-03-25 09:34

The publication of the draft regulations has brought the creation of the second board market in Shenzhen for listing start-ups closer to reality.

The China Securities Regulatory Commission has invited retail investors to submit written comments on the draft rules before March 31. Analysts who have read the draft said they are satisfied with most provisions that, they said, would provide an adequate and effective regulatory framework for the proposed market.

Analysts also agreed the smaller, new market is unlikely to drain capital from the main board market as it'll attract a different kind of investment, including venture capital.

"With the expected average capital of the second-board firms ranging from 30 million ($4.25 million) to 100 million yuan each, their initial public offerings would be too small to make much of a difference in the total liquidity pool in the capital market," said Li Yanlin, an analyst at Industrial Securities in Shanghai.

Analysts identified several industries with great growth potential after the second board market opens.

"Start-ups in technology, media and telecom, healthcare and energy are expected to benefit the most from the new market that can help them attract more venture capital," said Li Yanlin at Industrial Securities.

Analysts said listed companies with large stakes in venture capital firms would also benefit from the new market as exiting and reaping returns through IPOs on the second board market will become convenient for venture capital.

"The launch of the second board market will be a boon for venture capitalists," said Mao Nan of Orient Securities.

Venture capital funds are now invested mainly in privately held companies that have credible performance records, which make it easier for them to qualify for stock market listings. The lower requirements for listing on the second board market will make it viable for venture capital funds to invest in promising start-ups, analysts said.

"The second board will offer venture funds an exit channel to realize the gains of their investments in start-ups," Mao said.