Across The Border | Backdoor listings may rise after Chinese authorities scrap plans to make IPOs easier
The watchdog’s pullback from IPO liberalisation may encourage firms to buy shell companies.
China’s A-share companies that can be used as a shell for a backdoor listing became rare assets after the securities regulator scrapped planned liberalisations aimed at facilitating fundraising on the stock market.
A report by Shenwan Hongyuan Securities estimated that more than 40 firms are open to being taken over by other firms seeking a backdoor listing. They have either announced an intention to restructure assets or have failed in previous attempts to revamp.
The China Securities Regulatory Commission (CSRC) abandoned plans to set up a new board for emerging industries at the Shanghai Stock Exchange and put on hold the registration-based initial public offering (IPO) mechanism.
The decisions followed a market rout last year that wiped out US$5 trillion in capitalisation last year. They reflected the regulator’s determination to restore investor confidence.
Still, cash-hungry businesses attempting to sell shares to raise funds suffered a setback as the CSRC decisions stymied a fresh equity influx to the stock market.
“The road to an A-share listing appears to be convoluted,” Wang Feng, chairman of Shanghai-based Ye Lang Capital, a private-equity and investment consulting group, said. “A big number of companies will be seeking alternatives to IPOs in the coming one or two years.”