An attempt by the mainland's securities regulator to slow the so-called quake lake of listing applications on the mainland may turn out to have been a botched strategy, with fewer than expected companies voluntarily withdrawing their listing plans during the enforced re-examination campaign.
According to the China Securities Regulatory Commission (CSRC), 124 IPO applicants had terminated their share-sale plans as of Friday, while 765 firms continued to await a nod from the regulator for their listing plans.
The number of withdrawals fell well short of expectations that about 200 applicants with lacklustre earnings for 2012 would abandon their listing plans in light of a stringent re-examination requirement by the CSRC. All applications for initial public offerings were temporarily frozen in October to shore up investor confidence while preventing new shares from draining liquidity from existing holdings.
In January, the CSRC ordered all auditors and underwriters to conduct an in-depth check on prospective listing candidates' 2012 earnings. Though the regulator wouldn't announce the purpose of the re-examination, investment bankers said it was intended as a clear message that companies whose profits declined last year wouldn't be eligible for IPOs and should withdraw their listing plans.
Sources close to the CSRC said it expected to reduce the number of applicants by at least 200 during the campaign. All re-examination reports were required to be filed before March 31.
A top reshuffle earlier this month saw Bank of China boss Xiao Gang replace Guo Shuqing as chairman of the CSRC, with Guo becoming acting governor of Shandong province. The move heightened speculation among the IPO applicants that the new chief regulator would ease the pressure on listing candidates.
There were also rumours that the IPO market would be resumed in early April after Xiao took the helm.
The CSRC has not officially unveiled a clear-cut time frame for the reopening of the IPO market. It was earlier believed that the IPO ban would run to the end of the first half of 2013, and sources close to the commission said it had yet to decide when it would restart vetting IPO applications.
"IPO applicants were betting that a new CSRC chairman would lead to a U-turn in IPO policies," a source close to the regulator said. "But there are no signs that Xiao is considering opening the floodgate for share sales."
A flood of IPOs helped mire the mainland stock market in a bearish mode between 2010 and 2012, and former CSRC chairman Guo had striven to ease fund-raising pressures on the weak market since taking office in late 2011.
The re-examination order initiated by Guo was aimed at expelling companies without solid fundamentals.
Under the existing IPO rules, companies that report positive earnings three years in a row qualify for listings on the Shanghai Stock Exchange and the SME board at the Shenzhen Stock Exchange. The listing threshold for start-up firms planning to list on the Nasdaq-style ChiNext market in Shenzhen is even lower.
"The re-examination campaign is reasonable and the direction of the policy is correct because it's aimed at kicking out underperformers," said Long Yong, head of Guosen Securities' investment banking division. "It doesn't seem that changes to this policy will take place."