China beats US and Europe in IPO gains
Strong performance is a result of the securities regulator's efforts to protect small investors by tightening oversight of pricing of new shares
China's initial public offerings are vastly outperforming those in the United States and Europe so far this year - and investors can thank the country's regulators for much of the gains.
The 48 companies that completed listings this year have surged an average 54 per cent to date when adjusted for deal size, compared with a 9 per cent gain for 194 first-time sales outside China, data showed.
That performance owes much to efforts by China's securities regulator to protect small investors in an initial offering process that had been riddled with fraudulent practices.
Facing pressure from the watchdog, most companies that went public this year did so at below-average valuations as they rushed to raise money following a 15-month listing freeze.
"The current round of [listings] has the most administrative intervention in the history of China," said Ding Yuan, an accounting professor at the China Europe International Business School. "The securities regulator is burdened with the responsibility for price swings."
The resumption of stock sales in China helped push the value of listings in Asia-Pacific to US$17.7 billion so far this year, more than triple the amount raised last year.
Western Europe's listing market was also strong, more than tripling to US$15.6 billion. The value of US initial offerings fell 19 per cent to US$12.7 billion. The biggest in the US involved Santander Consumer USA, the car-lending unit of the Spanish bank, which raised US$2.07 billion in January.
Chinese regulators began tightening oversight of listing pricing in January after ending their moratorium on new offerings. The intervention stands in contrast to Premier Li Keqiang's call for a US-style listing system where supply and demand - not government meddling - determines valuations.
New rules from the China Securities Regulatory Commission take aim at a practice in which companies and certain investors collude to drive up bids in share sales. The regulator said it would now spot-check investor offers for flotation shares and blacklist those that fail to "bid cautiously". Another rule requires a company to disclose risks early if it is seeking a valuation above the industry average.
The tightening had the desired effect of constraining valuations, said Catherine Yeung, equity investment director at Fidelity Investment Management. "The retail investors are the winners and the companies are the losers," she said.
Individual investors typically account for as much as 40 per cent of a listing in the mainland's domestic market, compared with 10 per cent in Hong Kong. Of the 48 companies that went public this year, only eight priced shares above the average valuation of their sector, the CSRC said.
In all, the companies could have raised almost 50 per cent more than the US$5.3 billion they did this year when taking into account how Chinese listings outperformed those in other markets since they started trading.
At least one company cancelled its listing amid the regulator's renewed focus on pricing. Jiangsu Aosaikang Pharmaceutical, a Nanjing-based maker of cancer drugs, shelved its 4.05 billion yuan (HK$5.1 billion) sale in January after seeking a valuation at 67 times earnings, a premium to other drugmakers.