Beijing's balancing act sees IPO market reopen in China

PUBLISHED : Wednesday, 11 June, 2014, 1:15am
UPDATED : Wednesday, 11 June, 2014, 1:15am

Beijing has again opened the initial public offerings tap after a months-long suspension, giving cash-hungry firms a financing alternative amid tighter credit conditions.

At least seven companies released their IPO prospectuses yesterday, with six of them scheduled to start taking subscriptions next week.

The seven new share offerings, all from small firms, would net a combined three billion yuan (HK$3.78 billion). This is to be followed by more offerings, which could drag an already weak market further down.

The China Securities Regulatory Commission temporarily halted new offerings in October 2012 to stem fresh equity influx into a beleaguered market.

It resumed share offerings at the beginning of this year as 48 firms that had received listings approval before the suspension were allowed to float shares on the Shanghai and Shenzhen stock exchanges.

After a brief lull, the CSRC began reviewing listing applications in late April and announced that it would clear about 100 IPOs in the second half of the year.

The securities regulator finds itself in a tight spot when it comes to its listings policy. On the one hand, the weak market is a deterrent as more flotations will soak up even more cash from the market and dent current stocks.

On the other hand, increasing financing demand from companies owing to a credit tightening makes for a strong case to open the funding channel for thousands of cash-starved businesses on the mainland.

"The regulator has to strike a balance between financing demands and market performance," Haitong Securities analyst Zhang Qi said. "After all, a capital market is not a real capital market if companies are not allowed to raise capital on it."

The central leadership is determined to curb the risks facing the mainland's banking system as non-performing loans pile up and the shadow banking system threatens to cripple the economy.

The cabinet led by Premier Li Keqiang has been tightening monetary policy since last year to de-leverage an economy that had grown rapidly between 2009 and 2012, fuelled by easy credit in the wake of the global financial crisis.

Reopening the listings market returned to the agenda in the second half of last year as it became evident that they were needed to provide a financing platform for effective allocation of funds.

About 600 companies are in the queue to float shares on the A-share market and more than 400 have published listing documents for public scrutiny.

A flood of offerings could trigger panic selling on the market on fears new stocks would limit flows into existing stocks. The Shanghai Composite Index, one of the world's worst-performing indices between 2010 and 2013, has shed 3 per cent so far this year.

The CSRC is tasked with safeguarding retail investors' interests. Millions of retail investors on the mainland are retired workers who spend years of their savings to invest in stocks, raising the spectre of social unrest in the event of a market upheaval.

CSRC chairman Xiao Gang said in May that the regulator would follow an "orderly pace" in approving offerings, in keeping with the market's capacity for new shares.