CSRC probe to curb 'frothy' IPOs

CSRC to investigate 13 underwriters and 44 institutions in latest bid to restore confidence

PUBLISHED : Friday, 17 January, 2014, 1:09am
UPDATED : Friday, 17 January, 2014, 4:36am

The mainland securities regulator has launched an investigation into dozens of underwriters and institutions in an attempt to rein in frothy initial public offerings, amid increasing complaints about questionable pricing behaviour.

China Securities Regulatory Commission chairman Xiao Gang pledged to make stock markets transparent and fair but market observers doubt the latest move will be enough to effectively protect the interests of retail investors.

The CSRC said it decided to probe 13 underwriters and 44 institutions, sending a message to investors that it would take a harsh stance on the setting of artificially high prices for share offerings, a practice that has left thousands of individual investors with losses after listing.

Sources said the increased efforts to police IPO price consultations showed Xiao's determination to shore up investor confidence after the CSRC suspended more than a dozen offerings to avoid a huge liquidity drain.

But they added that based on the existing regulatory and legal controls, it was unlikely that anything concrete would result.

Beijing lifted a 15-month ban on new listings this month, with the CSRC granting approval for a flood of fundraising.

However, the large size of some of issues and their lofty offering prices sent tremors through the mainland's stock markets before the CSRC stepped in to halt some fundraising processes.

The underwriters to be investigated by the CSRC include leading securities firms such as China International Capital Corp, BOC International (China) and Haitong Securities.

Institutions which participate in price consultations during so-called off-line subscriptions include mutual fund houses, brokerages and state-owned firms.

When the CSRC announced it would reopen the listing market, it insisted that the newly reformed offering mechanism would safeguard the interests of retail investors.

The new system required applicants to fully disclose information on earnings and operations before the CSRC vetted the documents, while letting public investors decide their worth.

However, the regulator has yet to fully implement the reform measures and pricing power is still in the hands of the underwriters and institutional investors during the off-line subscription phase.

"Even if the reform is entirely carried out, retail investors would still be unable to assess the companies' reasonable value," said West China Securities analyst Wei Wei. "It will remain a big challenge for the regulator to tackle the IPO problem."

The mainland was the world's largest listing market in 2010 and 2011, with the fundraising euphoria blamed for a sharp fall in the key barometer of market performance.

The CSRC temporarily halted share offerings in October 2012, in an attempt to bolster investor confidence.