Small firms join rush to float shares on mainland

PUBLISHED : Friday, 28 January, 2011, 12:00am
UPDATED : Friday, 28 January, 2011, 12:00am

The number of smaller mainland companies making initial public offerings surged in 2010 and was fast approaching the combined total for the previous five years, according to China International Capital Corp.

CICC said a record 321 smaller firms went public on Shenzhen's SME Board and ChiNext market last year, compared with 363 between 2004 and 2009.

'China's stock market is undergoing structural changes,' said Huang Haizhou, chief strategist and co-head of research department at CICC.

Last year, the Shenzhen SME Board increased 17 per cent while the Shanghai Stock Exchange dropped 14 per cent.

Huang said that shift came on the back of efforts by the China Securities Regulatory Commission to promote the SME Board and a growing number of private equity and other funds seeking exits for their investments.

Last year, yuan-denominated funds surged 147 per cent to US$8.31 billion, while funds with geographical preference in the mainland increased 57 per cent to US$18.08 billion, according to research by PricewaterhouseCoopers.

While these funds still favour IPOs on the A-share market, they realise there is an oversupply of such offerings in the market.

David Brown, Greater China private equity group leader at PricewaterhouseCoopers, said many private equity funds and venture capital firms had recently become interested in the ChiNext market, which was set up in 2009 on the Shenzhen Stock Exchange as a Chinese version of Nasdaq.

'ChiNext-listed companies have attracted very high listing multiples, so the return they can achieve is higher,' said Brown. 'Whether these high multiples can be maintained or represent something of a bubble remains to be seen.'

Momentum shift

The mainland's stock market is undergoing structural changes

The number of smaller firms going public on Shenzhen's SME Board and ChiNext market last year hit a record: 321