Reformed IPO regime kicks in

Zhejiang Media Industrial has become the first company to bow to the mainland's reformed initial public offering mechanism, pricing its shares at a 4 per cent discount to its original target.

The cooker-maker due to list on the Shenzhen exchange will float 50 million shares at 9.6 yuan each, hoping to raise up to 480 million yuan (HK$590 million), 20 million yuan below the original goal.

The China Securities Regulatory Commission (CSRC) introduced a new IPO system at the end of last month as it stepped up efforts to curb exorbitant offering prices to protect retail investors' interests.

After price consultations in an offline subscription, Zhejiang Media was forced to scale back its offering size because of lukewarm response from institutional investors.

The CSRC now makes IPO issuers slot half of their offering for institutional investors in the offline system, also a process for price consultations. Earlier, only 20 per cent of the shares were allocated to institutional investors, which bid up prices to sky-high levels owing to the limited supply.

Zhejiang Media will offer the remaining 50 per cent of the IPO shares to the general public on Monday.

Ever since he took the job in October, CSRC chairman Guo Shuqing has been determined to contain excessively high IPO prices.

'Zhejiang Media's IPO pricing appears to be a success for the regulator,' said West China Securities trader Wei Wei. 'Efforts to protect retail investors are paying off.'

A flood of IPOs on the A-share market between 2010 and last year resulted in a huge liquidity drain, causing a sharp fall in the key index. The mainland has been the largest IPO market worldwide in the past two years, and the Shanghai index among the world's worst performers.

Buyers of new shares in the past two years have repeatedly been left high and dry as overpriced shares sank after making their debuts.

Guo has pledged to safeguard investors' interests by rolling out more measures to bolster the market.

Under the new mechanism, IPOs priced 25 per cent above the average price/earnings ratio of their peers are required to be closely monitored.

Issuers have have to publish all bids by institutions participating in the offline subscriptions.

Zhejiang Media's offering price of 9.6 yuan translates into 22.8 times its earnings last year, 13.8 per cent higher than its peers' average P/E ratio.

1st

The mainland's place in the world ranking of largest IPO markets for the past two years