CSRC to revamp IPO allocation rules
Daniel Ren in Shanghai and Adam Chen in Beijing
Beijing is preparing to bar small companies from allocating part of their initial public offerings to institutional investors, as it looks at revamping the public offering system.
The China Securities Regulatory Commission might require small capitalisation companies to offer all their new shares through a public bidding system, giving retail investors a better chance of owning lucrative initial offering stocks, a CSRC source said.
The regulator was seeking to reform a system that had long been in favour of cash-rich institutions at the cost of individual investors, analysts said.
Mainland companies normally allocate 30 per cent of their offering shares to institutional and corporate investors, with the remainder offered to the general public through an online lottery system.
New shares are priced artificially low on the mainland to bring investors high returns on their first trading day.
Institutions allowed to take part in the online bidding usually win more offer shares, shortchanging individual investors.
The CSRC had previously considered barring institutions from bidding for new shares through the online system, but was hesitant to implement this because of concerns the purchasing power of retail investors would not be enough to facilitate initial offerings.
The regulator had also considered making companies place less than 30 per cent of their offering shares for institutions, a source said.
'Whatever changes the regulator makes, they are all makeshift as long as the unfair pricing mechanism remains' said GF Securities analyst Zhang Wancheng.
The CSRC was embroiled in controversy after energy giant PetroChina started trading in November last year. Its A shares soared more than 190 per cent on its debut when millions of retail investors gravitated to Asia's most profitable company. However, small investors were burned when big funds dumped their shares to lock in gains.
PetroChina shares closed at 16.84 yuan yesterday, 65.3 per cent off their peak.
Wang Lin, a deputy chief of public offering supervision at the CSRC, said at the weekend that the regulator was studying ways to create a new system that could give retail investors a better chance of winning public offering shares.
However, he conceded that the new mechanism would be based on the existing framework.