China Resumes IPOs As Stock Market Revives

Editorial Team
Editorial Team
China Resumes IPOs As Stock Market Revives

China’s securities regulator said on Friday it would resume initial public offerings (IPOs) in China, lifting a suspension put into effect in July as regulators desperately tried to slow a devastating stock market crash.

China Securities Regulatory Commission (CSRC) spokesman, Deng Ge made the announcement at a weekly news conference in Beijing.

The CSRC said that 28 companies which had seen their already-approved listings halted by the freeze would be the first out of the gate, adding they have two weeks to prepare for the resumption, with the first batch of 10 companies launching after 20 November.

The announcement comes after signs Chinese stock markets have finally stabilised following a rocky summer; this week the CSI300 index posted its best weekly performance since June.

Mainland stock indexes are up by more than 20 percent from the bottom of a crash struck in August, technically marking a return to a bull market.

“This is a good news for the stock market in the mid-to-long term as it will introduce fresh cash, though it will also bring some psychological pressure to investors as they are afraid of diversion of the cash in the short term,” said Xiao Shijun, analyst at Guodu Securities in Beijing.

The stock market crash over the summer was partly blamed on a spate of IPOs hitting an already frothy and heavily leveraged market.

Companies in mainland China had raised $23.4 billion in IPOs in 2015 through mid-June before regulators suspended deals, far surpassing the $13.2 billion in all of 2014, Thomson Reuters data showed.

At one point the CSRC was letting 40 companies list every week and there were even more secondary issuances.

“I don’t think the resumption will cause a market stampede again,” said Xiao. “In June, the fundamentals were distorted by high leverage, which does not quite exist in the current market after the regulator’s aggressive moves.”

Policy problems

Zhang Qi, analyst at Haitong Securities in Shanghai, said he expected retail investors to be sceptical of how much they will benefit from the resumption of IPOs, which were highly distorted by pricing restrictions and other policies.

“I am also expecting further changes to IPO rules, including to the quota for major stakeholders’ share of subscriptions.”

The CSRC has said it would migrate away from its current approval system for IPOs to system in which companies merely register to list without requiring regulatory clearance.

However, rules aimed at preventing insiders from fleecing investors suppressed IPO pricing, unintentionally creating an easy profit for those investors able to subscribe.

Nearly every listing in China rose by the maximum allowable 44 percent on the first day, and most went on to rise into triple digits in the following weeks.

As a result, IPOs went oversubscribed by an average of 130 times, and the escrowing of cash by aspiring subscribers temporarily sucked trillions out of the money markets and distorted interest rates.

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The Editorial team at APAC Outlook Magazine is a team of professional in-house editors led by Jack Salter, Head of Editorial at Outlook Publishing.