|Chinext punishes companies that do not meet earnings forecasts|
Launched in October 2009, Chinext is a listing segment of the Shenzhen Stock Exchange for small and medium-sized innovative companies, created to become the "Nasdaq" of China. Little over a year since its start, it holds 147 companies and has an average daily trading volume of 6 billion yuan. Being among these companies is not easy. Whoever decides to enter the Chinext needs to be ready, literally, to deliver what it promises to investors.
The Chinese junior market establishes penalties for companies that are not faithful to their earnings forecasts. If the issuer discloses a profit forecast but fails to achieve at least 80% of it, the legal representative of the company and the accountant who signed the forecast are required to explain the failure and apologize to the shareholders in the shareholders' meeting. An explanation of the incident must also be disclosed on the company website and in newspapers designated by China Securities Regulatory Commission (CSRC), regulator of the Chinese capital market. If the amount of profits does not reach 50% of predicted value, the penalty is more severe. The company is prohibited from making a new offer of securities for a period of 36 months.
For an IPO on Chinext, the company must prove that it is profitable and therefore a good investment. It is required that the issuer has registered over the past two years a profit of at least 10 million yuan. Another alternative is to have earned profits of 5 million yuan in the previous year and revenue of at least 50 million. In this case, it is necessary to prove that revenue grew at an annual rate of at least 30% in the last 24 months.