IPO resumption talk stops rally in China stocks
Buyers pull out on fears of liquidity drain after regulatory official says share offers may restart
Ray Chan in Beijing and Jeanny Yu
Mainland stocks snapped a two-day rally yesterday after a senior regulatory official said initial public offerings might resume in the next quarter, triggering fresh concerns of a liquidity drain.
"The regulators have never said they will suspend initial public offerings. Thus share sales could, in principle, kick off after March 31," Yao Gang, a vice-chairman of the China Securities Regulatory Commission, said in Beijing.
Yao said the regulator was seeking to simplify its vetting process and it encouraged listed companies and major shareholders to provide information to investors by adopting a disclosure-based approach.
CSRC said it planned to complete vetting listing candidates by June and had requested sponsors and issuers to submit financial updates by this month.
The Shanghai Composite Index closed 0.98 per cent lower.
CSRC has restricted approvals for listings since June last year, creating a backlog of more than 800 applicants and operating pressures on investment banks advising share listings. No companies have been listed in the past five months.
"The market reacted negatively to Yao's comment as most investors on the mainland are retail investors, who fear a liquidity drain," said a senior executive with a Chinese investment bank in Beijing who asked not to be named. "Insider trading, unreasonably high valuations and an opaque listing process are not uncommon in the domestic market, where the government decides who can go public based on private connections and background in the party."
Although CSRC chairman Guo Shuqing has repeatedly called for regulatory reform and greater investor protection, meaningful policies are still not in sight.
UOB Kay Hian strategist Wang Aochao said a resumption of public listings should not drain more than 30 billion yuan (HK$37.4 billion) per month from the market otherwise the share market would "collapse".
Given that the average size of an initial public offering on the mainland was about 1 billion yuan, the regulator should approve no more than 30 listing applications per month, he added.