Mainland IPOs now in choppy waters

PUBLISHED : Friday, 15 April, 2011, 12:00am
UPDATED : Friday, 15 April, 2011, 12:00am


The mainland market for initial public offerings has hit a rough patch, with Beijing SPC Environment Protection Tech getting a record lack of interest from institutional investors.

SPC's 7.6 million new shares earmarked for corporate and institutional investors were only two times oversubscribed, the most lacklustre response in the history of the mainland stock market. It is more used to seeing a buying frenzy among institutional investors over listing shares, which in the past have tended to be dozens of times oversubscribed.

The lukewarm response from investors underscores growing difficulties for companies seeking to raise money on the domestic stock exchanges.

'It shows the IPO market is in trouble amid the weak buying interest,' said TX Investment Consulting analyst Qiu Yanying. 'It also raises questions about whether the regulator should wield its influence in the controversial primary market.'

Before 2009, most newly listed stocks jumped at least 30 per cent on the first day of trading, resulting in 'subscription euphoria' among thousands of institutional and retail investors for each offering.

SPC, which is due to list on the SME board of the Shenzhen Stock Exchange, allocated 20 per cent of its shares to institutions and the rest, or 30.04 million shares, were offered to the public. While the shares were sold, the response bodes ill for the outlook of coming share offerings, analysts said.

The China Securities Regulatory Commission had a final say in the pricing of offerings before 2009, requiring the companies and underwriters to artificially set prices low, a move to help state-owned companies' fund-raising activities.

But the regulator reformed the mechanism in mid-2009, letting the underwriters and companies decide the price, an apparent effort to make the sales market-oriented.

Though market watchers touted the reform as a proper step to develop the mainland's often-arcane capital market, where government directors have played a dominant role in fund-raising activities and index performances, investors have increasingly vented their spleen at the regulator following a series of poor debuts that saw many of them lose money.

'Such criticism appears groundless since it was not wrong for the regulator to reform the IPO mechanism, making it a market-driven system,' said a CSRC official who asked not to be identified. 'It's unlikely that the regulator will backpaddle.'

But according to Bohai Securities, 20 stocks listed this year crashed below their offering price on the first trading day. Nearly half of the shares now trade below their offering levels.

The debate on whether Beijing should resort to the old offering mechanism began to heat up when the stock market turned bearish last year. The benchmark Shanghai Composite Index was the world's third-worst performing index last year, with a slide of 14.3 per cent.

A total of 349 companies raised 478.3 billion yuan (HK$568 billion) through A-share listings last year, making the mainland the world's largest market for offerings.

In the first quarter of this year, the mainland's listing market remained strong, with 89 firms netting a combined US$15.84 billion. The money raised in the first quarter accounted for 49.9 per cent of the global total in the same period, according to fund consultancy Zero2IPO.

PricewaterhouseCoopers predicted 400 companies would list on the mainland exchanges this year, raising up to 400 billion yuan.

'In a market where investors got used to following the regulator's administrative forces to play stocks, it's really a hard choice for the authorities,' said Qiu.

'Maybe the IPO market wouldn't have turned sour if the regulator hadn't intervened.'