China tightens share-offering rules for listed companies in bid to avoid issuance glut and boost markets
- Restrictions will apply to issuers whose shares trade below book value or offer price, in the case of first-time stock sales, the Shanghai and Shenzhen stock exchanges said
- Companies with a track record of two consecutive years of losses will need to keep a gap of at least 18 months between fundraising
China has tightened the rules for listed companies seeking to raise funds using the equity route, in what is seen as another bid to limit supply of new shares and support stock prices in a sluggish market.
Restrictions will be imposed on companies whose shares trade below book value or their IPO offer prices, the Shanghai and Shenzhen stock exchanges said on their websites on Wednesday night. A newly imposed limitation now requires a gap of at least 18 months between two bouts of refinancing by a company with two consecutive years of losses.
Meanwhile, listed companies with a high proportion of financial investments will be asked to limit their share offerings, and companies with refinancing plans will be directed to use proceeds from equity sales for investing in projects linked to main businesses, to prevent disorderly investments across different sectors, the statement said.
The curbs, which primarily target share sales and placements by publicly-traded companies, are part of the latest efforts by financial regulators to bolster confidence in China’s US$9.6 trillion stock market, the world’s second largest. The new regulations follow an order issued by the China Securities Regulatory Commission (CSRC) in August aimed at slowing down the pace of initial public offerings (IPOs).
“It will help to strike a balance between investments and fundraising to ensure stability in the secondary market,” said Wei Wei, an analyst at Ping An Securities. “In the long run, that will be conducive to keeping good order in the capital market and guide resources to good-quality, listed companies.”