Mainland authorities are ready to open the floodgates for new stock listings anytime soon, says an adviser to policymakers in Beijing, freeing up the backlog of companies looking to raise capital and allowing private-equity firms to cash in their stakes.
There has been recent speculation on the mainland that the domestic initial public offering market, shut since November, could restart either before or after the October 1 National Day holiday, when the securities regulator completes a detailed plan to reform stock-offer procedures.
Speaking at an industry forum in Hong Kong yesterday, Fred Hu, chairman of China-focused private-equity firm Primavera and a former Goldman Sachs partner, said: "China's listing market will resume between now and the year end."
That should help ease some of the pressure on private-equity firms that own minority stakes in companies hoping to list.
Known for his candid macroeconomic research and advice to policymakers in Beijing, Hu said: "There is no way the CSRC [China Securities Regulatory Commission] or the Chinese government wants to have a permanent freeze on [public] equity financing."
He said a clear trend in the mainland's continuing financial reform was "to increase the important role of direct financing, i.e. capital markets, for equity and debt issuance, as well as bank lending practices".
In a bid to boost confidence by limiting new listings, the CSRC has asked companies and underwriters to carefully check their financial and operating materials before listings in a bid to stop poorly run companies tapping the mainland's retail-investor-oriented capital market.
Hu said the mainland had previously adopted an overly stringent approval regime before giving approval for a listing, "which does not entirely match industry practices". However, the new CSRC leadership had been moving away from the mainland's "approval" style and towards Hong Kong's "market disclosure" system, which should effectively ease the backlog of companies waiting to list.
The CSRC plans to restrict share issuers and major shareholders from selling their stock at below the IPO price as part of new rules aimed at cracking down on fraud and protecting investors.
The mainland IPO market, which includes the Shanghai and Shenzhen stock exchanges, has been the single most important exit point for private-equity investors for the past two decades as well as for some large state-owned enterprises looking to raise fresh capital.
Hu said that the mainland authorities would not stop domestic IPOs forever, and he believed the suspension of listings was a "temporary" situation because it had added to the liquidity and market risks faced by investors and clogged up the flow of capital.