Pricing of mainland IPOs under scrutiny
The China Securities Regulatory Commission yesterday opened consultations on proposed rules that would lead to closer scrutiny of the pricing of initial public offerings.
The draft document, which was released last Saturday on the commission's website, suggested that IPOs priced 25 per cent above the average price-to-earning ratio of their peers in the same industry should be closely monitored.
Should the ratio of such companies fall below the IPO pricing level after they commenced trading on the exchange, the commission could request a 'conversation' with the companies' senior management, and issue warning letters if necessary.
The commission suggested plans to cancel the three-month lock-up period for institutional investors in domestic initial public offerings, and open up the lock-up period for negotiation between the issuer, underwriter and institutional investors.
Brokers said the measures were consistent with the policy of the new chairman, Guo Shuqing, to improve the mechanism and transparency of the A-share market. The mainland regulator clamped down on insider trading earlier this year to try to boost investors' confidence.
The A-share market was among one of the worst performing stock exchanges in Asia. The Shanghai Composite Index lost 22 per cent last year.
Price-swings of newly listed shares due to speculation were blamed for the volatility. According to the Securities Daily, 66, or 40 per cent, of 164 new listings crashed below their offer prices between January and June of last year.
Kenny Tang, general manager of AMTD Financial Planning, said the proposed measure should cool down frenzied speculation on IPO prices on the mainland, and push some issuers to consider listing in Hong Kong instead of on the mainland.
But he doubted mainland issuers in Hong Kong could achieve double-digit price-to-earnings in their listing price. As of last year, nine of the 10 largest listings in Hong Kong were trading below their offering price. Deloitte estimates 45 per cent of the new listings in 2011 were priced at the bottom of their indicative range.
The number of initial public offerings that were cancelled in Hong Kong last year, according to an estimate by Deloitte