Reforms to boost the IPO market
Measures to speed up application process, cut bureaucracy and end year-long moratorium are announced by mainland's securities watchdog
The mainland's securities watchdog signalled the end of a year-long drought in domestic initial public offerings yesterday.
It announced long-awaited reforms to speed up the application process and cut red tape.
The move is designed to revive a languishing market that just three years ago was worth US$71 billion.
An initial batch of about 50 companies could complete the registration process in time to list by the end of next month, raising several billion yuan, the China Securities Regulatory Commission (CSRC) said in a statement yesterday.
The reforms were aimed at making the listing process more responsive to market demand, a commission spokesman said.
Previously, companies that wanted to go public were required to undergo multiple rounds of wide-ranging reviews that could drag on for years before the regulator gave the go-ahead.
The government wants to replace that inspection phase with one that requires the company to simply register for a public offering, and submit to a review that is much more narrow in scope.
"The reforms reflect Beijing's hope to bring the equity market system in line with global standards," said Nathan Lin, chief executive of GF International Investment Management.
"China may want to gradually open up the capital market and help it internationalise."
Listings drew to a halt in November last year amid a fraud crackdown by the commission on misconduct among advisers.
More than 760 companies were on the waiting list to go public and it would take about a year to complete the approval process, the commission spokesman said.
The spokesman said the reforms would give the market a greater role in determining the timing and number of IPOs.
"When the demand for IPOs is big then there will be more firms listing," he said, "When there is no demand, then there will be few or no IPOs."
Liu Li-gang, chief China economist at ANZ Bank, questioned whether the market could absorb a rush of new listings and said they might drag the market down further. China's benchmark Shanghai Composite Index has fallen 2.1 per cent this year.
"Liquidity in China, including in the interbank and bond markets, is very tight now, so where will the funds to invest in IPOs come from?" Liu said.
"It puts extra pressure on the market if more companies seek to raise money."
Tse Yung-hoi, chairman of BOCI-Prudential Asset Management, suggested some mainland firms would choose to list in Hong Kong, denominating their shares in yuan, to avoid a negative impact on the mainland's domestic A-share market.
"It is good for them to successfully raise funds and good for the yuan to internationalise in Hong Kong," he said.
Separately, the State Council introduced guidelines for a pilot scheme for preference shares, requiring companies to pay a higher dividend to shareholders.
The use of such shares would help deepen corporate governance reforms, provide a flexible financing tool for companies and promote stability, it said.