China’s securities regulator warns new economy firms from overinflating valuations for IPO

The combined market value of Ping An Good Doctor, ZhongAn Insurance, China Literature, Yixin Group, and Razer has fallen by more than HK$160 billion from their recent peaks

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China Securities Regulatory Commission has asked issuers, underwriters and institutional investors to exercise caution in their IPO pricing process. Photo: EPA-EFE

Published: 7:54pm, 15 Jun 2018Updated: 8:34pm, 15 Jun 2018

China’s top securities regulator has warned new economy companies not to inflate their valuations in the pre-IPO stage, singling out Ping An Good Doctor, ZhongAn Insurance, China Literature, Yixin Group, and Razer, noting that the wild swings after their IPOs have raised concerns about overpricing.

China Securities Regulatory Commission has asked issuers, underwriters, and institutional investors to “exercise caution” in the initial public offering book building process after it recently launched a pilot programme to support innovative companies to list on domestic exchanges and allow overseas listed mainland companies to issue China Depositary Receipts.

Book building is the process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors.

Several new economy companies have quickly plunged from their peaks or fallen below their offer prices after being listed in Hong Kong, “in stark contrast with the frenzy during their IPOs”, the state-owned Securities Daily, a designated newspaper by the CSRC to disclose listed company information, quoted officials from the agency as saying on Friday.

Ping An Good Doctor, the biggest listing in Hong Kong so far this year, dropped below its IPO price of HK$54.9 on its second trading day on May 7. On Friday, it closed at HK$55.35, down 0.4 per cent from the previous close.