China's crackdown on overpriced IPOs shows effect

Higher investor bids ignored as firms heed price warnings issued by market regulator

PUBLISHED : Wednesday, 15 January, 2014, 1:38am
UPDATED : Wednesday, 15 January, 2014, 1:38am

Mainland companies marketing initial share sales are settling for lower valuations than most investors are willing to pay, evidence that a central government crackdown on overpriced deals is yielding results.

Beijing Utour International Travel Service, Hebei Huijin Electromechanical and Yangzhou Yangjie Electronics Technology priced their share offerings at below-average valuations for their respective industries after rejecting most investor bids for stock as too high, according to statements on the Shenzhen Stock Exchange's website yesterday.

The announcements suggest the China Securities Regulatory Commission's decision at the weekend to tighten listing supervision is yielding more favourable terms for investors. Cracking down on overpriced initial public offerings was the centrepiece of a reform the regulator announced in November last year before it ended a more than year-long freeze on new listings.

We need to be prudent during the pricing and marketing procedures

"We need to be prudent during the pricing and marketing procedures," Ding Xiaowen, a co-head of investment banking at UBS's Chinese securities joint venture, said on Monday when asked about the CSRC measures. "We will try our best to make sure all market participants will be happy about our pricing. This may not always be achievable but this is our goal."

Utour, Hebei Huijin and Yangjie Electronics are raising a combined 1.03 billion yuan (HK$1.32 billion).

The CSRC has said it would crack down on practices that led to overpriced deals, including investors colluding with companies to drive up valuations by making high bids with no plans to actually buy the stock.

Utour plans to sell shares at a 42 per cent discount to average valuations in the leisure industry after excluding the top 96 per cent of bids from institutional investors.

Hebei Huijin, a maker of cash-handling machines, also said it eliminated the highest 96 per cent of bids and priced its shares at 21.3 times 2012 earnings, below the industry average. Yangjie Electronics announced pricing that it said was in line with peers after turning away the top 94 per cent of bids.