China stock market

Chinese securities regulator slows IPO approvals to bolster market confidence

CSRC gives nod to only four IPOs in latest round of approvals

PUBLISHED : Monday, 05 June, 2017, 5:04pm
UPDATED : Monday, 05 June, 2017, 11:21pm

The China Securities Regulatory Commission (CSRC) is slowing down its approvals of initial public offerings in an effort to check a decline in mainland Chinese equities.

The regulator gave the go ahead to only four companies in the latest round of approvals compared with seven a week earlier. This is the second straight week the CSRC has cut the number of new offerings, coinciding with a decline that dragged down the Shanghai Composite Index by 6 per cent from this year’s high on April 11.

“The slowdown trend has basically been confirmed and it will have a positive impact on the market,” said Wei Wei, a trader at Huaxi Securities. “It shows the regulator is taking a very serious attitude towards the recent market performance. You can say it’s only symbolic, but what matters is that the regulator is delivering confidence to investors.”

The latest slowdown in IPO sales adds to recent regulatory measures aimed at boosting the market. Less than two weeks ago, the CSRC unveiled rules broadening sell-off restrictions to all pre-IPO investors and tightening stock sales carried out by major shareholders through block trades.

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China’s stock regulator often slows down or even suspends new stock offerings amid declines in the secondary market, believing that the reduced supply of stocks will boost share prices. The CSRC has frozen new IPO share issues a total of nine times in its history, with the latest one being in 2015 when a stock rout erased US$5 trillion in market value.

The four most recently approved listings, two in Shanghai and two in Shenzhen, are expected to raise 1.5 billion yuan (US$220 million) collectively, the smallest amount since at least February. The seven companies approved last week are expected to rack up 2.3 billion yuan in proceeds from their IPO offerings.

The slowdown trend has basically been confirmed and it will have a positive impact on the market
Wei Wei, a trader at Huaxi Securities

From the start of the year to the end of May the CSRC was approving around 10 IPOs every week but as financial deleveraging measures weighed on stocks, investors blamed the regulator for flooding the market with new supply.

The pace of first-time stock sales accelerated this year as the regulator was keen on clearing a backlog of companies lining for IPOs after the 2015 market shake-up. A total of 199 companies have been approved to sell IPO shares so far this year, compared with 280 for the whole of 2016.

The Shenzhen-based ChiNext index of small-caps responded positively to the slowing of IPO sales dominated by smaller firms, ending up 0.9 per cent on Monday, while the Shanghai Composite index of larger companies slid 0.5 per cent.