5 firms delay IPOs as CSRC sends warning
Print Edition
Five Chinese companies said yesterday that they were postponing initial public offerings, in a blow to efforts to give market forces a “decisive” role in the country’s stock exchanges.
The China Securities Regulatory Commission said in late 2013 that it would move to give investors, not state officials, the primary role in deciding who gets to list and at what price.
But concerns about overpricing and insider cashouts appear to have convinced the CSRC it needed to step in to prevent the process from being corrupted, further damaging already shaky confidence in the country’s stock markets.
“When I saw that the pharma deal had been pulled, it was honestly a bit depressing,” said a Hong Kong-based investment banker, who declined to give his name because he is involved with underwriting deals on China’s mainland.
“It just shows that the CSRC still has its hands held tightly on the tiller.”
Along with its plans to abandon the current approval-based system for stock listings in favor of the kind of registration-based system employed in mature stock markets, the CRSC had also said in December that it would allow IPOs to resume in January after being frozen for more than a year.
Euphoria dims
The decision was accompanied by a series of related reforms to the pricing of IPOs, and the initial wave of filings appeared promising, with the first two firms to start fundraising attracting massive investor interest.
But since Friday six companies have announced they will voluntarily suspend their listing plans. Sources said that in the case of drug producer Jiangsu Aosaikang, the suspension announced at the end of last week was the result of pressure from the CSRC. The regulator has denied this.
The latest postponements followed a weekend announcement by the regulator that it would further tighten supervision.
On Sunday, the CSRC said that any company that priced its IPO at a premium to its industrial peers in the secondary market, measured by the respective price-to-earnings ratios, must delay opening subscriptions to retail investors by three weeks while it publishes repeated risk warnings.
It also said it would conduct random spot checks of book-building and road shows — the processes in which banks assess demand for offerings and then market the sales.
In response, five more companies put their IPOs on hold yesterday, citing the CSRC statement as the reason.
The five companies were NetPosa Technologies Ltd, Hebei Huijin Electromechanical Co, Nsfocus Information Technology Co, Beijing Forever Technology Co and Ciming Health Checkup Management Group Co.
Warning to market
“If you want to allow the market to set prices, the market has to work properly, and clearly the market is not working properly,” said Wei Yao, China economist at Societe Generale in Hong Kong. “This is a way of sending a warning to the market that the CSRC is determined to get what it wants.”
Nevertheless, it is doubtful that the CSRC is happy about headlines highlighting problems so early, given than there are nearly 750 more companies still queued to list.
“The latest statement by the CSRC won’t do much to change the fact that IPO reforms appear to have failed,” said Zhang Qi, senior stock analyst at Haitong Securities in Shanghai.
“For example, the new reforms permit existing shareholders to cash out at the IPO, while in the past they needed to wait for lock-up periods to expire before selling. This has only encouraged issuers and underwriters to price their IPOs as high as they can.”
Analysts pointed out that the bulk of the shares to be sold during Aosaikang’s IPO were existing shares held by management, not new issues. That, plus the fact that the shares were priced much higher than industry peers, suggested insiders were trying to offload stock at an artificially high premium, they said.
Zhang said that in some cases during the book-building process he had seen the highest quotes come in four or five times above the lowest quotes, which he said suggested someone was trying to manipulate the IPO price.
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