China’s first-quarter IPOs plunge 65% as regulator’s focus on listing quality saps pipeline

IPOs have raised 23 billion yuan (US$3.18 billion) in the first quarter, compared with 65.1 billion yuan in the same period in 2023
‘The slowdown in IPOs will carry on, and the listing process for mega IPOs is expected to be lengthened,’ analyst says

IPO

Zhang Shidongin Shanghai

Published: 11:00am, 31 Mar 2024

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China’s initial public offerings (IPOs) tumbled 65 per cent in the first quarter, a trend that is likely to persist through the year as the securities regulator has pledged to improve the quality of new listings and apply more scrutiny to listing applicants.

Twenty-eight companies have raised a total of 23 billion yuan (US$3.18 billion) by selling new shares on the mainland’s three exchanges, compared with 68 listings that raised 65.1 billion yuan in the first three months of 2023, according to Bloomberg data.

The slump reflects a shift in the regulator’s stance on fundraising, which investors blamed for causing a glut of stock issuance and contributing to a three-year downturn in stocks. The China Securities Regulatory Commission (CSRC) said it would tighten listing rules, particularly on applicants without a profit record, and conduct more random checks on applications to eradicate accounting fraud and prevent excessive fundraising.

These steps add to measures that have been in place since August to slow the pace of new offerings to bolster investors’ confidence.

A man walks in the Shanghai Stock Exchange building at the Pudong financial district in Shanghai in February 2020. Photo: Reuters

“The slowdown in IPOs will carry on, and the listing process for mega IPOs is expected to be lengthened,” said Wang Zhengzhi, an analyst at Guotai Junan Securities in Shanghai. “The purpose is to guard against risks and promote the high-quality development of the capital market.”

The biggest IPO this year is Grandtop Yongxing Group, a Guangdong province-based waste treatment company that started trading in Shanghai on January 18 after raising 2.43 billion yuan, Bloomberg data shows. That is about half the size of the most valuable deal in the January-March period in 2023, when Hunan Yuneng New Energy Battery Material raked in 4.5 billion yuan on the Shenzhen bourse. Grandtop now trades at about 18 per cent below its offer price of 16.20 yuan.

The IPO market is one of the focus areas for more regulatory oversight after Beijing appointed a new CSRC chairman in February as part of its drive to arrest the decline in the US$9 trillion stock market.

China’s ‘broker butcher’ vows to tighten IPO rules, curb false accounting

A registration-based system for IPOs, which downplays the profitability of the applicants and moves vetting power from the CSRC to the exchanges, has led to a palpable increase in stock supply and stirred criticism for being lax with unqualified companies since it was implemented a year ago.

The CSRC fined the chip maker Shanghai S2C 16.5 million yuan last month for overstating its revenue and profits in its listing prospectus. The company had earlier applied to list on Shanghai’s tech-dominated Star Market.

Increased regulatory surveillance has already led an increasing number of companies to recoil from IPOs: 73 companies have withdrawn IPO applications in the year to date, according to statistics gathered by Shanghai Securities News. Some 184 companies did so in the whole of 2023.

Syngenta withdraws Shanghai IPO application amid slowing China equities market

On Friday, Syngenta Group withdrew its 65-billion yuan IPO in Shanghai, after several false starts over the course of three years.

“After careful consideration of the industry environment and the company’s own development strategy, Syngenta has decided to withdraw its application for an IPO on the main board of the Shanghai Stock Exchange,” the company said in a notice to the exchange.

The Shanghai Stock Exchange said it had terminated a review of the company’s initial public offering (IPO) application after Syngenta applied to withdraw its IPO.

The CSRC will link the pace of new share sales to the performance of the secondary market and members of listing committees will have lifelong responsibility for malfeasance, the watchdog said in one of four policy documents it issued this month.

“That will reinforce the market’s expectations about tighter supply of new shares,” said Li Hui, an analyst at Huajin Securities.

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